Chart of the Week: Yield Curve

Looking at the past two decades, whenever the Fed has started tightening AND the yield curve has flattened, it has presaged a downturn in economic activity, as reflected in the ISM.

That is exactly the situation we find ourselves in at present:

Federal Reserve, Yield Curve and the Economy
click for larger chart
Panzner_fed_yield_flatten
chart courtesy of Michael Panzner, Rabo Securities

Panzner used this measure because it has had a pretty good correlation with swings in year-over-year Gross Domestic Product data during the period.

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