Yield Curve and Spreads Ahead of the Fed Rate Cut Decision


Here is the final snapshot of the yield curve and spreads ahead of the first interest rate cut since 2008.

The Fed will cut rates in about 20 minutes. This is what the yield curve looked like ahead of the announcement.

Yield Curve 2019-07-31 Pre-FOMC Announcement

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The yield curve, especially counting the Fed Funds Rate at 2.40% is massively inverted. The 3-month is inverted out to 10 years, but now just barely.

I will do a comparison later today of the changes.

Yield Curve Screaming for Cuts

There is currently no economic basis for a rate cut. Jim Bianco at Bianco research says the yield curve alone is reason enough.

Certainly, the yield curve is screaming for cuts along with President Trump who says Bigger is Better: A "Small Cut" Won't Do.

How Will the Curve React?

My Reply to Bianco

If the goal is to un-invert the curve I rather doubt even 50 basis points would do.

But why should that be the goal?

The yield inverted yield curve is a symptom, not the problem. I propose a recession is coming no matter what the Fed does.

The bubbles are too many and the economic distortions too great for economic policy to fix the problems.

It is impossible to un-blow bubbles.

Mike "Mish" Shedlock

Comments (2)
No. 1-2

Paralysis analysis. The yield curve makes less sense in the era of QE and rates < 3%. The problem with looking at the yield curve in this era is it has inverted multiple times with no recession but simply persistent slow or low growth. This is a secular trend b/c of debt and not because of anything else. The Fed can try to stimulate more growth because of the fiscal and debt issues but it won't matter. We are headed to for the 1/1/1 decade. 1% growth, 1% FFR, 1% inflation. Despite having very different demographics than Japan, we will have a similar experience over the next few decades. The better solution IMO would be to net out debt between all countries as a start. Then each country has to get its own fiscal house in order. Japan tried to push on a string for decades. It hasn't worked too well. We will only do slightly better b/c of a growing population but GDP won't fare much better. Get ready for multiple decades of economic chaos.

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