Investment Office Logo

Do Yield Curve Inversions Still Predict Recessions in the Age of QE?

Why central bank stimulus may muddy the waters.
Tomasz Wieladek , T. Rowe Price International Economist
T. Rowe Price,  Market Insights, November 2019

Key insights

  • Conventional wisdom suggests that U.S. recessions usually follow an inverted yield curve. However, we should be wary of assuming this applies today.

  • Our analysis suggests that when government debt on a central bank’s balance sheet exceeds 10%, an inverted yield curve loses its predictive power.

  • As such, we believe investors should put greater weight on macroeconomic fundamentals when assessing the risk of recession in the current environment.