Economic Demise Ahead?

Economic Demise Ahead?

April 3, 2018 Off By Chuck

There are some that believe a tightening yield curve is a harbinger of a bad economic times ahead, with a good possibility of the economy failing into a recession. If this were true, the chart below should be of concern as interest rates are in their tightest range in many years.

The fact is, the correlation between tightening rates and economic weakness is poor and provides little to no edge if used in making investment decisions. What does matter though, very compellingly, is when the yield curve inverts (short term rates are higher than long term rates), something we are in no danger of seeing happen anytime soon. Until that occurs (and it is worth monitoring because of its very high negative correlation to stocks), recent interest rate activity is reflecting FED activity and forecasts, not economic demise.