What Scented Candles Say to an Economist
Still, another standard financial sign of an impending downturn is the relationship between short- and long-term interest rates, known as the yield curve. Normally, this has an upward slope because investors need a higher return the longer their money is tied up. However, if they expect the economy to weaken soon, and the Federal Reserve to respond by cutting interest rates, the yield curve will slope down.
This held true before the 2008 financial crisis: There was a negative yield curve for months. The problem was that hardly anybody paid attention to it.
.. Commentators sometimes say that steering the economy using G.D.P. data is like driving a car using only the rearview mirror.