The Fed

December 28, 2005

Yield Curve -- an Indicator, not a Cause

Understanding the causal relationship is crucial in using any indicator.  Lacy Hunt says that reducing M2 growth will slow the economy, but what does this have to do with the slope of the curve?  Meanwhile, there was a lot of economic and media commentary today citing the same arguments I made yesterday.  I'll summarize below, but first review the Hunt argument:
Link: Explaining Yield Curve Inversions.

The Yield Curve briefly inverted -- twice -- Monday. As we noted yesterday, the deeper and longer a curve remains inverted, the more potentially significant it is. That factoid has been overlooked by many commentators. Following yesterday's post about …

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