How doe the inverted yield curve impact the economy?

160 viewsEconomicsOther

I having trouble understanding this. What goes up must come down? i get that when the fed raises rates it is to tame inflation. Inflation getting too high can lead to a recession, but those rates come down eventually? If investors were worried about future economic outlook why bother buying short term bonds? If rates continue to get higher wouldnt they lose money regardless?

However

I am also thinking investors are taking advtange of the higher interest rates, there fore buying short terms bonds to lock in profit?

Please help

In: Economics

2 Answers

Anonymous 0 Comments

The inverted yield curve can be thought of as a measure of future expectations. It doesn’t affect the economy, it is what lenders and borrowers expect the economy to be in the future. A yield inversion means that a lot of borrowers and lenders believe that the economy will slow down in the future.

People borrow and lend for many reasons. An insurance or pension fund has funds that need to be invested long term since they have long term liabilities – they don’t have a “choice” in a sense. Another example is that most home buyers have no “choice” but to take 30 year loans.

You are viewing 1 out of 2 answers, click here to view all answers.