Flat Yield Curve May Result in a More Aggressive Fed
Don’t discount the central bank’s intentions to continue boosting interest rates.
Fed Governor Lael Brainard offers clues to future path of interest rates.
Photographer: Bloomberg/BloombergBy all accounts, the Federal Reserve is intent on pushing ahead with its plan to gradually raise interest rates despite some strong signals in the bond market that policy makers risk going too far. Specifically, I'm talking about the yield curve, which is the flattest since 2007 and is rapidly heading toward an inversion.
The question of whether an inverted yield curve, which is traditionally a very prescient recession indicator, will cause the Fed to rethink its tightening plans is shaping up to be the next big debate among policy makers, with potentially major consequences for financial markets. The answer may lie in recent comments by key Fed officials who suggest an inversion may not mean what it has in the past.