Key Insights

• The risk of a recession in the near term has not increased markedly despite the flattening of the U.S. Treasury yield curve.

• While in the past a rise in the short rate typically caused the flattening of the curve, on this occasion, policy has not been tightened to the same degree. Second, cyclical indicators do not point toward the buildup of economic vulnerabilities.

• Finally, the very low term premia currently in evidence mean that yield curve flattening or inversion was more likely to occur recently than at any other point in U.S. history.

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Recession Risk Muted Despite Curve Flattening