Ed Yardeni: That flawless predictor of recession and a bear market is wrong this time

The yield curve is commonly measured as the spread between the 10-year U.S. Treasury bond yield and the federal-funds rate (Fig. 1). This spread has narrowed significantly since the start of this year, raising fears of an imminent recession and a bear market in stocks (Fig. 2). That’s because in the past, the yield curve spread has flattened (i.e., narrowed) and then inverted (i.e., the bond yield was below the federal-funds rate) immediately preceding the past seven U.S. recessions.

Recessions cause bear markets in stocks, which is why the yield curve has received lots of buzz recently (Fig. 3).

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