Fed funds rate → Yield curve

Common explanation (Cause · opposite direction): Rate hikes lift short-term rates first, flattening or inverting the curve.

This issue: Fed funds rate at 72 (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.

Where it stands now

Where the two indicators stand this issue

Fed funds rate: 1.31 percentage points above its 10-year average. Yield curve: Now 1.05 percentage points.

Tests

Does this link hold up?

Common explanationRate hikes lift short-term rates first, flattening or inverting the curveSource: Federal Reserve Bank of Dallas, “Inverted yield curve (nearly always) signals tight monetary policy, rising unemployment” (2019). That article uses the 10-year minus 1-year spread; this site uses 10-year minus 3-month.
Tested against our dataAgreement between the positions of Fed funds rate and Yield curve (3-month lag), measured in the direction of the common explanation: +0.77 (an opposite-direction link: the raw correlation is −0.77, and a negative correlation fits, so the sign is flipped). Looking at every 5-year period (shifted one year at a time), the two moved in that direction in 46 of 48. Supported by the data
Periods when it did not holdAcross 48 5-year periods, out of step in 1982⁠–⁠1988.

History

The two lines, overlaid

Data: Federal Reserve H.15, via FRED (Federal Reserve Bank of St. Louis); Federal Reserve H.15 (10-year minus 3-month), via FRED (Federal Reserve Bank of St. Louis). Positions: our calculation.

Fed funds rateYield 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).

same month+0.83
3-month lag+0.77
6-month lag+0.69
9-month lag+0.60
12-month lag+0.52
18-month lag+0.33

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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