What the yield curve reveals about the economy

00:00 Speaker A

What could I say the current yield curve says about the economy right now?

00:05 Speaker B

Oh, that’s good. So, the slope of the curve gives you indications. You’ve got your normal yield curve. So think about it, if I have a shorter term rate, the Fed influences the front end of the curve.

00:17 Speaker A

Correct.

00:18 Speaker B

That’s the Fed, and they don’t control it, they influence.

00:25 Speaker A

Mhm.

00:27 Speaker B

That normally is low, if it’s lower, the Fed lowers rates, you expect what?

00:37 Speaker A

What?

00:38 Speaker B

Growth in the economy.

00:40 Speaker A

Growth in the No, no pop quizzes, please.

00:44 Speaker B

Yes, sorry. Okay, you expect growth in the economy.

00:48 Speaker A

But so the line should be sloping upwards.

00:51 Speaker B

Okay. Okay. If it’s if it’s flat,

00:58 Speaker A

Yeah.

00:59 Speaker B

that means we might have the growth expectations are kind of stalled.

01:03 Speaker A

Okay, I stalled out.

01:05 Speaker B

That’s a stagflation environment. Inverted, yes, we don’t love.

01:13 Speaker A

I just sorry. I know. I like the word, not the term.

01:21 Speaker B

Yes, yes. Um, but then if it’s inverted. Now think about the inversion because a lot of times we will say that the yield curve has inverted. We expect a recession. It takes about 13 months before that happens. The Fed inverts the yield curve because they influence the front end.

01:56 Speaker A

Mhm.

01:56 Speaker B

We expect growth to slow down, hence why it starts going down. The front end affects your high-yield savings account, very, very short end. And that’s you want to pay attention to the Fed if you’ve got fluid cash. And it’s very prudent if you expect them, especially if we get a dot plot that says we’re going to lower rates at this time, you might want to lock in the rates before they do that, if you’ve got the extra cash. Then it’s all the way that the government borrows money is very tied to the way that we borrow money. The three to five year periods is tied to your auto loans.

02:41 Speaker A

Right. There’s prime and there’s margins attached to that. And then the 10 year.

02:47 Speaker B

10 year housing, right? Interest rates. Yeah. There we go.

02:51 Speaker A

Exactly. Exactly.