This Flat Yield Curve Is No Mystery, According to a Fed Study
- San Francisco Fed research blames low inflation, neutral rate
- There’s some risk that term premium could rise abruptly
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This isn’t Alan Greenspan’s yield curve.
The gap between short and longer-term interest rates has been narrowing even as the Federal Reserve raises its policy rate, a trend that echoes the so-called “flattening” of the curve between June 2004 and December 2005. Then-Fed Chairman Greenspan called the mid-2000s episode a “conundrum,” but the leveling out is no mystery this time around, Federal Reserve Bank of San Francisco researcher Michael Bauer writes in a note called the Economic Letter.