Global Pendulum
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Issue 1 · Late October 2026

US inflation → Yield curve

Common explanation (Direct mechanism · opposite direction): When inflation rises, the central bank lifts short-term rates and the gap between long and short rates narrows or inverts.

This issue: US inflation at 64 (warm), Yield curve at 41 (neutral) — at least one is in the neutral range (40⁠–⁠60), so we make no call this issue.

Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.

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Where it stands now

Where the two indicators stand this issue

US inflation: 64 (0.41 percentage points above its 10-year average). Yield curve: 41 (Now 1.05 percentage points).

Tests

Does this link hold up?

  1. Common explanationWhen inflation rises, the central bank lifts short-term rates and the gap between long and short rates narrows or invertsSource: Federal Reserve Bank of Boston, “Predicting Recessions Using the Yield Curve: The Role of the Stance of Monetary Policy” (2020). The article gives no lead time; since this link runs through central bank rate rises, this site reuses the 0⁠–⁠12 months of “US inflation → Fed funds rate”. The article also notes that the 2019 inversion came mainly from falling long-term yields, not from rate rises.
  2. Tested against our dataBy position (each compared with its own normal — do their highs and lows move together?): agreement between US inflation and Yield curve (6-month lag) is +0.43 (an opposite-direction link: the raw correlation is −0.43, and a negative correlation fits, so the sign is flipped); across every 5-year period (shifted one year at a time), the two moved in that direction in 44 of 54.By change (how far each position moved over the past 12 months — do their swings move together?): agreement +0.19; the two moved in that direction in 41 of 53. The two measures disagree: their long-run highs and lows move together, but their swings within a year often do not (by change, only “weak”).
    By position44/54
    By change41/53
    Each cell is a five-year period (shifted one year at a time): filled = in step with the common explanation, outlined = out of step.
    Supported by one measure
  3. Periods when it did not holdAcross the 5-year periods (shifted one year at a time, so they overlap), the periods out of step cover — by position (54 periods): 1986⁠–⁠2002, 2003⁠–⁠2008 and 2016⁠–⁠2025; by change (53 periods): 1982⁠–⁠1999, 2003⁠–⁠2010 and 2018⁠–⁠2023.
  4. Does it predict?Prediction test (a historical test, unrelated to “Where it stands now” above and not this site’s forecast): does adding the past 12 months of US inflation make Yield curve easier to predict? Result: Some sign, but fails the hurdles (p = 0.045; the smaller, the less likely by chance). Forecasting a recent stretch of data not used for estimation, the error is 5.6% higher.Some sign

History

The two lines, overlaid

Data: US: Bureau of Labor Statistics, via FRED (Federal Reserve Bank of St. Louis); Japan: World Bank Global Economic Monitor (CC BY 4.0); others: OECD; Federal Reserve H.15 (10-year minus 3-month), via FRED (Federal Reserve Bank of St. Louis). Positions: our calculation.

US inflationYield curve

Time lag

At what lag do they match best?

Longer bar = moves more in the direction of the common explanation (the number is the agreement).

Limits

What this card cannot tell you

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