Today we reached a definitive milestone, as it relates to the 10yr / 2 Yr Inverted Yield Curve.
Although it has inverted several times during the past week, the inversion has been for only a short period of time.
This is not something that we are projecting, and it is certainly not something that we are advocating, but there is increasing talk among US official about the possibility of a Negative Interest Rate Policy in the United States, most recently by the President of the New York Fed.
With the outlook for the US Economy at least having strong headwinds in the future, it is wise to realize that the Fed just does not have enough “firepower” (just 200 more basis points, compared to a traditional 400 bp’s plus) to get a recessionary economy turned around with traditional Monetary Policy tools.
We have clearly experienced a “sea change” as it relates to Rates during the past few months. This is evidenced by the fact that virtually all sectors of the US Treasury Yield Curve, beyond one year, are down by 125 – 150bps.
The Fed’s recent decision to lower the Fed Funds Rate by 25bps is just the latest episode in the drama that has been playing out, especially over the past few months.
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