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Caroline Baum: To invert or not to invert? That is the Fed’s question

In previous business cycles, an inversion of the yield curve as a precursor to recession was a niche issue.

Yes, the spread between the federal funds rate and the yield on the 10-year Treasury note was added to the index of leading economic indicators in 1996, where it maintains its starring role: first among equals. Even so, economists, both inside and outside the Federal Reserve, were always willing to overlook an inverted term spread — “This time is different!” — when the economy was looking hunky-dory.

It’s not obscure anymore. The subject, and the spread’s predictive power, have been discussed ad nauseum.

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