Part 2/11:
Understanding the Yield Curve: The Macroindicator of Choice
The yield curve illustrates the spread between long-term and short-term interest rates. Typically, these rates are influenced by market expectations of future growth and inflation, while central banks, like the Federal Reserve, primarily set short-term interest rates. When long-term rates exceed short-term rates—creating a normal, upward-sloping yield curve—it indicates economic optimism. Conversely, when short-term rates surpass long-term rates, the yield curve inverts, signaling caution or impending slowdown.