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Inverted Curves Not Only Signal Recession. They Might Cause One

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Guggenheim's Minerd Says Flattening Yield Curve Shows Not Enough Reserves

An inverted yield curve can potentially harm U.S. economic growth and even cause a recession by pinching bank-lending margins and causing a contraction in loan activity, according to a blog posted on Thursday by the Federal Reserve Bank of St. Louis.

An inversion, when yields on short-term Treasuries rise above returns on longer-dated debt, has preceded every U.S. recession for the past 60 years. It’s currently not inverted, though the spread between two- and 10-year Treasuries has flattened.