Jerome Powell indicated more interest-rate hikes would be necessary to curb inflation Wednesday.
Parts of the yield curve inverted deeper after the Federal Reserve Chair’s comments.
The yield curve has inverted before every major US recession since 1969.
Parts of the US bond yield curve have inverted more deeply after the Federal Reserve signaled further interest-rate hikes, suggesting that investors are fretting about a recession.
The widely-tracked economic indicator is a graphical representation of the spread between long- and short-term US Treasury yields.
When short-term debt securities offer higher yields than long-dated ones, the yield curve is said to be “inverted” – and that movement has foreshadowed every major US recession since 1969, according to the London School of Economics.
The curve has been indicating since July 2022 that an economic slump is looming, and negative spreads deepened on Jerome Powell’s admission that more central bank tightening looks likely.
The Fed Chair said at a conference in Portugal Wednesday that interest rates of over 5% “may not be restrictive enough” – and added the following day in Spain that most of the Federal Open Market Committee believe the bank will have to raise borrowing costs twice more.
“A strong majority of committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year,” Powell told a conference in Madrid.
“Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.”
The closely-followed spread between 10-year and 2-year Treasury yields deepened to minus 100 basis points Wednesday, according to the Federal Reserve Bank of St. Louis.
Meanwhile, the gap between 1-year and 30-year government bond yields reached its most inverted level since 1981, per data from Refinitiv.
Read more: Biden says there won’t be a recession. Wall Street isn’t so sure.
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Source: https://finance.yahoo.com/news/recession-indicator-flashed-again-fed-170633026.html