The yield on the benchmark 10-year Treasury note stood at 1.623% early Wednesday, well below the 2-year yield at 1.634%. And some Key analysts say that it is not a reliable indicator at all.
"The kind of volatility you see today in the inversion of the yield curve is sending yet another signal that the Fed needs to lower", he said on Fox Business Network. The DJIA is down -2.89% and the S&P is down -2.74% at the time of writing.
The inversion of portions of the Treasury bond yield curve this week "would have to be sustained over a period of time" to be taken as a "bearish" signal for a USA economy that continues to grow, St. Louis Federal Reserve President James Bullard said on Thursday.
"Households are in good shape with spending and that should continue as long as the labor market remains healthy", National Retail Federation chief economist Jack Kleinhenz said. Some have even lowered rates to below 1%. Or if the Fed appears to be in denial about the need to cut rates sharply but is expected to figure it out sooner or later, that's another reason long-term yields would fall. The Trump administration backtracked on a portion of planned tariffs Tuesday, with the president seeming to concede that tariffs could harm American businesses and consumers.
He described current Fed chair Jerome Powell as "clueless" and also called the yield curve inversion "crazy".
President Trump on Thursday touted Walmart's "outstanding" quarterly-earnings report as evidence that the USA economy is "doing great" amid fears of a looming recession. Companies & jobs are fleeing. Trump tweeted. "As others falter, we will only get stronger". "China is not our problem.Our problem is with the Fed", he wrote on Twitter. Our problem is with the Fed.
Wednesday, President Trump targeted Fed policy as the reason for this recent market turmoil. Data also showed industrial output in China fell to more than a 17-year-low in July.
As central banks compete for more dovish policies, however, they threaten to cancel each other out, making each move less effective.
Equity markets steadied on Thursday after dropping about 3 percent.
"Overburdening of monetary policy in recent years has made it nearly ineffective, or even harmful in some cases, as central banks are trying to address problems beyond their control, with limited and often experimental policy tools", Bank of America Merrill Lynch FX strategist Athanasios Vamvakidis said in a recent report.