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The predictive power of yield curve inversions

Wells Fargo Investment Institute - April 20, 2022

Key takeaways

  • In recent weeks, the Federal Reserve (Fed) has turned decidedly hawkish regarding the monetary outlook. Additional rate hikes and a balance sheet runoff are likely on the horizon.
  • Some market participants are concerned that a near-term yield curve inversion could signal U.S. economic weakness ahead. The Treasury yield curve has historically been a powerful predictor of recession in past economic cycles.
  • While we believe that economic growth will continue at a moderate pace, the risks are building that the economic expansion may slow more than expected given the ongoing threat from inflation. We are at a key inflection point.

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