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Can Yield Curve Inversions Be Predicted?

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  • Kurt Graden Lunsford

Abstract

An inverted Treasury yield curve?a yield curve where short-term Treasury interest rates are higher than long-term Treasury interest rates?is a good predictor of recessions. Because of this, economists and policymakers often assess the risk of a yield curve inversion when the yield curve is flattening. I study the forecastability of yield curve inversions. Professional forecasters did not predict the beginning of the yield curve inversions prior to the 1990?1991, 2001, and 2008?2009 recessions. In all three cases, professional forecasters failed to predict the magnitude of the rise in short-term interest rates. Prior to the 2008?2009 recession, forecasters also overpredicted long-term interest rates.

Suggested Citation

  • Kurt Graden Lunsford, 2018. "Can Yield Curve Inversions Be Predicted?," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2018(06), pages 1-6, July.
    • Handle: RePEc:fip:fedcec:00090
    DOI: 10.26509/frbc-ec-201806
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    References listed on IDEAS

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    1. James B. Bullard, 2017. "Assessing the Risk of Yield Curve Inversion : a presentation at Regional Economic Briefing, Little Rock, Ark. December 1, 2017," Speech 295, Federal Reserve Bank of St. Louis.
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