Talk:Economic Outlook: Difference between revisions

But the article I cited is not saying that, they  talk about the yield curve inversion is a change in expectations. But they say there are 2 forces at play that contrarest each other.  

1.When there are higher odds of recession, market expect less inflation risks and then monetary easing due to it. Inducing an inversion.  

2.When there are higher odds of recession, investors appreciate liquidity, valuing more short term maturities due to this. This mean a inversion is actually good expectations for the economy.  

Ultimately their point is that not all inversion points to a recession, like you are saying. That we need to understand the current enviroment and expectations to conclude if the markets are saying higher odds of a recession or not.  

I would say the 2 point is much less important that the first 1, and thats why historically when the inversion it is this prolong, like it has been in 2022, and levels that it has reached, it always end up in the same end result which is a recession in the future. Not the yield curve inversion causes it, but that the markets are pricing in that result.  

When market expect economy weakness, they are known to flee to safe assest, especially the 10 year bond. If I am expecting significant rate cuts in the future due to this, owning a longer term bond can be very valuable, whith a higher yield and capital gains too with lower risks.

Yes, they could be expecting inflation to come down signicantly even to allow the FED to cut rates, without a recession. But historically that is not a very likely outcome.