Last month we talked inflation (there is almost none), unemployment (almost none of that either) and yields on treasury securities (very little, or let’s just call it historically low). The Fed has nothing to do except patiently wait. Last month something happened; the treasury yield curve inverted for the first time since 2007. Egads!

Simply, the yield curve is called inverted when short-term rates are higher than long-term rates. This is usually not the natural order of things as investors usually prefer to be paid more yield to invest longer because something usually does happen later and it might not be good. Older people usually explain the difference using words like inflation (again, see last month’s letter).

I could write an unlimited number of narratives as to why the yield curve is inverted and anyone could write one regarding what it portends. Traditionally an inverted yield curve portends lower growth prospects, according to the Federal Reserve, so it made sense for them to lower their 2019 forecast to 2.1% from 2.3%. Or maybe one has nothing to do with the other.