Economist Mike Walden: Watching the Yield Curve

I’m Mary Walden, with economist MW, welcoming you to the economic perspective.  Today’s program looks at the yield curve.  Mike, investors, business persons, and workers – really everyone – benefit from information helping to predict the economic future.   I understand one of the ways to do this is to look at the yield curve. What is the yield curve, and what is it telling us about the future economy?

1. Yield curve is a comparison of short term and long term interest rates
2. Usually long rates are higher than short rates – risk of waiting longer to get your money
3. But when the two get closer – and especially when the short rates turn higher than the long rates – that is a flashing red sign
4. Recently the long and short rates have gotten closer – indeed, some short rates (2 yr) were have been higher than some long rates (5 yr)
5. Implication – not to panic, but suggesting a somewhat slower-growing economy in the immediate future
6. Does this mean a recession – don’t yet know

And I’m Mary Walden for the Economic Perspective, an NC State Extension program from the Department of Agricultural and Resource Economics.