Odds Rise For "Inverted Yield Curve" & New Recession

1. Policy Committee Set to Hike Fed Funds Rate Tomorrow

2. Yield Curve Flattening – Could It Invert in the Next Year?

3. CNBC Writer Predicts Inverted Yield Curve This Year

4. Trump Should Cut Corporate Taxes First, Wait on Infrastructure


The Fed policy committee will almost certainly raise the key Fed Funds rate by another 0.25% tomorrow. Minutes from the early May Fed meeting indicate that the Fed sees the 1Q economic weakness as temporary, and the odds for a rate hike tomorrow are above 90%.

The so-called “yield curve” – the spreads between yields on short-dated Treasuries (notes) and longer-dated Treasuries (bonds) – have been narrowing most of this year, and analysts wonder if this trend is likely to continue.

Some worry we may be looking at an “inverted yield curve” where short rates rise above long rates before too long. Inverted yield curves are bad for the economy and have preceded the last seven recessions. We’ll look into this issue as we go along today.

Finally, I’ll summarize the latest article from CNBC’s Larry Kudlow, one of my favorite financial writers. He met last week with top Trump officials and presented them with a plan for how to move their economic policy forward in the wake of James Comey’s controversial Senate testimony last week. I like the plan and I think you will too. Let’s get started.

Policy Committee Set to Hike Fed Funds Rate Tomorrow

It is widely expected that the Fed Open Market Committee (FOMC) will raise the target range for the Fed Funds rate by 0.25% from 0.75%-1.00% to 1.00%-1.25% at the conclusion of tomorrow’s policy meeting. It will be the second rate hike this year following the last bump in March. Fed Funds futures put the odds of a rate hike tomorrow at over 90%.

Federal Fund Rate

Some analysts argue that the Fed should not raise the rate tomorrow citing the weak GDP growth of only 1.2% in the 1Q and the disappointing May unemployment report which showed only 138,000 new jobs versus 185,000 expected. Yet the minutes from the last FOMC meeting on May 2-3 suggested the Fed considers the weak 1Q GDP to be temporary.