The Inverted Yield Curve – Should We Worry?

The IYC occurs when short-term interest rates (as set by the Federal Reserve) go higher than long-term bond yields (as set by the market). Why get upset about that? Because IYCs (almost always) predict economic slowdowns, usually 6-12 months out. As we begin 2006, the yield curve is flat, not inverted. However, if the Fed keeps hiking, inverted it soon may become.

Rich Karlgaard.