By now, most Americans have felt inflation‘s squeeze and wondered if the looming recession will come to pass.
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Now, one of the most reliable economic indicators suggests it will. The difference between the yield on two- and 10-year treasury notes is the largest it’s been in roughly 40 years, according to a DataTrek note reported by Insider.
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Known as an inverted treasury yield, the ominous sign graphs yields across a range of maturities. An inverted yield curve shows that short-term debt instruments have higher yields than long-term instruments of the same credit risk profile — meaning that long-term interest rates are less than short-term interest rates, per Investopedia.
The two-year yield has exceeded that of the 10-year for nearly a year now, but as of Monday, the two-year was trading at a yield of 4.241% compared to a yield of 3.578% on the 10-year — the most severe inversion since the 1980s, per Insider.
The Fed is expected to raise interest rates another three-quarters of a percentage point in 2023, setting a 17-year high of 5-5.25% from its current 4.25-4.5% level, Bankrate reported.
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But the Fed’s attempt to slow down inflation isn’t necessarily good news for all borrowers.
Laura Veldkamp, a professor of finance and economics at Columbia University Business School, told CNBC that some households will be reassured by price stabilization while others with variable rate debt, like credit card debt, will be hurt by it.