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20 PalletCentral • May-June 2019 palletcentral.com
down. The process is reversed when the Fed wants to slow economic growth
because of inflationary fears.
The gap has closed over the last four years. Economists get concerned when short-
term interest rates move above long-term interest rates, which is called an inverted
yield curve. Almost every time that has occurred, the economy slips into a recession
later. The lag between the inverted yield curve and the onset of the recession has
usually been about 1-2 years.
The interest rate curve inverted in the 2006-7 period and the recession was
underway by 2008. The yield curve has inverted again. But it was not caused by the
Fed pushing rates higher, but weakness in the bond market.
The exact cause for the decline in long-term rates is not clear. Three culprits are
possible. First, the concern that the economy will slow is leading to a cut back in
Because the yield curve is inverted it might be time to
be concerned about a recession in 2020 or 2021, just
like the economist group. There is nothing evident in
the overall economy to suggest that a recession will
occur in the next 12 months. However, the current
interest rates situation is a concern.
