Why an indicator that has foretold almost every recession doesn’t seem to be working anymore

Wall Street’s favorite recession signal started flashing red in 2022 and hasn’t stopped — and thus far has been wrong every step of the way.

The yield on the 10-year Treasury note has been lower than most of its shorter-dated counterparts since that time — a phenomenon known as an inverted yield curve which has preceded nearly every recession going back to the 1950s.

However, while conventional thinking holds that a downturn is supposed to occur within a year, or at most two years, of an inverted curve, not only did one not occur but there’s also nary a red number in sight for U.S. economic growth.

The situation has many on Wall Street scratching their heads about why the inverted curve — both a signal and, in some respects, a cause of recessions — has been so wrong this time, and whether it’s a continuing sign of economic danger.

 

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