I recently came across the website RealInvestmentAdvice.com and their discussion on the yield curve flattening. I also read the Investmenthouse.com and their discussion on the FED always overshooting interest rate hikes. This weekend’s newsletter from Investmenthouse.com even referred to the FED member’s justifications towards the flattening that the yield curve is no longer accurate; this time it’s different; etc. It appears we will be a victim of the fed again.
There are two factors at work with rate hikes, one is size (25 basis points, versus 50 basis point rise) and time. My question, if we know there is data showing a softening and there could be a need to postpone (versus withdrawl) and planned rate hike, what’s the harm? I believe the fear is the market will react to that and they fear a selloff. That is not the FED’s mandate however. Just like previous presidents, secretaries of state, and congress, there has been very little decisive action, unless there is maximum pain in not making that decision. Hopefully, the FED takes a play out of President Trump’s playbook and decides to be proactive versus reactive.
For reference, as of this writing, the 2/10 yield curve is sitting at .21 and heading for inversion.
For more on this from an excellent article, head over to: http://realinvestmentadvice.com/dont-fear-the-yield-curve/