Economy Watch and the Inverted Yield Curve

You may have been reading headlines in financial news for the past several months about how the yield curve has inverted, warning of a pending recession. The inversion happens when Short Term government bonds sell for a higher yield than their Long Term counterparts. This has proven to be true preceding all recessions in the past seven decades (except for 1967). 

Like most reliable forecasting tools, this decade has created exceptions. The forecast for a 2021 recession based on this inversion did not materialize despite the inversion gap predicting a 30% probability of recession. We are currently at 26% probability. The similarities in 2021 and today not present in earlier times are the strong job growth numbers and GNP.

Most economists continue to discount a pending recession. They point to the aggressive use of interest rates by the Federal Reserve to try and stem inflation as the driver of this current inversion curve. 

Where this inversion curve has had it effect has been the real estate industry. The sales of homes have dropped one third since 2021, deeply impacting the jobs dependent on volume of sales. This includes Realtors, lenders, closing agents, home inspectors and several other occupations who comprise the 50 plus professionals who depend on each real estate sale for their own livelihood.

Please give me a call at Premier Funding Network to answer any of your mortgage questions at 714-283-9900.

 


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