Yield curve → Leading index

Common explanation (Cause · same direction): An inverted curve usually signals tight monetary policy and expected rate cuts, and the economy weakens afterwards; inversions have often come before recessions.

This issue: Yield curve at 41 (neutral), Leading index at 42 (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.

Where it stands now

Where the two indicators stand this issue

Yield curve: Now 1.05 percentage points. Leading index: Now 100.14.

Tests

Does this link hold up?

Common explanationAn inverted curve usually signals tight monetary policy and expected rate cuts, and the economy weakens afterwards; inversions have often come before recessionsSource: Federal Reserve Bank of New York, “The Yield Curve as a Leading Indicator”.
Tested against our dataAgreement between the positions of Yield curve and Leading index (15-month lag), measured in the direction of the common explanation: +0.22. Looking at every 5-year period (shifted one year at a time), the two moved in that direction in 28 of 51. Weak or inconsistent
Periods when it did not holdAcross 51 5-year periods, out of step in 1981⁠–⁠1988 and 1990⁠–⁠2024.

History

The two lines, overlaid

Data: Federal Reserve H.15 (10-year minus 3-month), via FRED (Federal Reserve Bank of St. Louis); Organisation for Economic Co-operation and Development (OECD), Composite Leading Indicators. Positions: our calculation.

Yield curveLeading index

Limits

What this card cannot tell you

Moving together does not prove that one causes the other.
Links change over time; periods when this one did not hold are listed in full.
This is the historical record, not a forecast.

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