Fed Talk, Rates Improve, What’s a Yield Curve Inversion?

The main way the Fed influences interest rates is very narrow, usually through a policy lever known as the federal funds rate. It’s the rate banks charge each other to borrow money overnight. By making it cheaper for banks to borrow, it makes it cheaper for businesses and households to borrow. That is the traditional way the Fed has tried to boost the economy. It injects more money into the system…

The fact that the neutral rate is so low is a reflection of a fundamental economic issue: there’s a big supply of savings floating out there, but there’s nowhere near the demand for investment. And that lack of investment is bad news for economic growth.

10 Year US Treasury Yield

Rates – dipped again this week in response to ongoing trade tension between the US and China as Stocks experienced the worst day of the year on Monday. Mid-week the 10 Year US Treasury yield hit its lowest level since pre-2016 presidential election.

Core Logic Appreciation

Appreciation – in June home values increased by 0.4% nationwide & have increased by 3.4% over the last 12 months. Corelogic predicts a 5.2% gain in values over the next 12 months. If you have own a $400,000 home it is predicted to be worth $420,800 by June of 2020.

Yield Curve Inversions

Inversion – yield curves are considered “inverted” when a shorter term treasury note pays better than a one with a longer term. Currently you can purchase a 3 month or 1 year treasury note and get a better return than purchasing a treasury note that you held on to for 10 years! 5 months ago there were no inversions in the yield-curve and historically inversions have preceded recessions. It is worth noting that we are not at inversion between the 10 and 2 year yields (graph below)

Areas in red mark inversion – grayed areas mark periods of economic recession.

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