, Columnist
A Massive Yield-Curve Headache Awaits the Federal Reserve
The spread between short- and long-term Treasury yields is rapidly narrowing before rate increases even begin.
Oh, the yield curve.
Photographer: FPG/Hulton Archive/Getty Images
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Federal Reserve officials, now in a self-imposed blackout period before their Dec. 15 decision, have made their policy pivot clear. They are no longer comfortable with the current level of inflation and are prepared to end their bond purchases sooner than previously expected to position themselves to raise interest rates to combat price pressures.
With this abrupt shift, they’ve potentially created another problem for themselves: Encouraging overzealous bond traders to front-run their policy actions and distort yield curves in the U.S. Treasury market.