What You Need To Know About Markets And The Economy
But a Monday note from Ned Davis Research argues that the yield curve inversion indicator may no longer be a reliable leading indicator of a coming downturn.
"In the old days, banks would borrow short and lend long. With an inverted curve, that's a disastrous recipe for net interest margins. Banks would tighten standards or charge more for loans," NDR's chief global macro strategist Joseph Kalish explained. "In an ample reserves regime that we've been in post-GFC, banks also have plenty of deposits. They don't need to borrow in the fed funds market to meet reserve requirements. As a result, inverted curves are less effective in the transmission of financial conditions to the real economy," Kalish said.
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