Talk:Inverted yield curve
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I have a couple of issues: 1) This article lacks a straightforward, understandable explanation of WHY a yield curve becomes inverted; 2) there is no mention of the expectations theory; 3) the reference to a liquidity trap is awkward and confusing, and 4) we can do better than to rely on Investopedia. I'll volunteer to craft some changes. Preliminary thoughts:
Expectations theory holds that long-term rates depicted in yield curve are a reflection of expected future short-term rates which in turn reflect expectations about future economic conditions and monetary policy. Applying expectations theory to the yield curve: investors expect economy to slip into recession, which would cause Federal Reserve monetary policy to transition from tightening (driving up interest rates) to easing (reducing interest rates). In that scenario, expected future short-term rates fall below current short-term rates. Result: the yield curve inverts. (Federal Reserve paper athttps://www.newyorkfed.org/research/epr/08v14n1/0807rose.html)
And this: "Some argue that the shape of the yield curve contains an implicit forecast of future interest rates...If [investors] anticipate recession and lower interest rates, they try to lock in long-term yields, which drives down long-term interest rates...."'[1]
Your feedback and thoughts are welcome. Cordially,BuzzWeiser196 (talk) 22:13, 2 February 2023 (UTC)BuzzWeiser196 (talk)22:13, 2 February 2023 (UTC)[reply]
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