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Rates: Restrictive
How expensive it is to borrow, short and long term. Rate tightness is well above its 20-year middle: restrictive.
Score 1.38 on a −2 to +2 scale: the average of 12 indicators, each placed by where today sits in its last 20 years. Indicators where a higher number means less rate tightness are flipped.
Indicators
Connections
Inversions have come before most U.S. recessions, with long and variable lags. Typical lag: 6-24 months. The strongest pattern runs the other way: correlation -0.26 in the same period (115 observations since 1996).
The expected path of short rates feeds long rates, which also reflect growth and inflation expectations. Typical lag: days-months. Strongest match in the same period (correlation 0.52, 371 observations since 1996).
Mortgage rates track the 10Y plus a spread. Typical lag: same week. Strongest match in the same period (correlation 0.88, 371 observations since 1996).
Higher borrowing costs cool building and buying. Typical lag: 3-12 months. Strongest match 5 months later (correlation -0.33, 364 observations since 1996).
Higher rates usually come with stricter loan terms. Typical lag: 1-3 quarters. Strongest match 5 quarters later (correlation 0.34, 119 observations since 1996).
The Fed targets 2% core PCE; persistent overshoots push rates higher. Typical lag: months. Strongest match 1 month later (correlation 0.44, 369 observations since 1996).
Sticky core inflation keeps the Fed from cutting. Typical lag: months. Strongest match in the same period (correlation 0.36, 368 observations since 1996).
Higher real yields lower the present value of future profits; growth stocks are most sensitive. Typical lag: same period. Strongest match 1 month later (correlation -0.27, 274 observations since 2004).
As old debt rolls over, higher rates raise the government's interest bill. Typical lag: months-years. Strongest match 4 months later (correlation 0.88, 294 observations since 2002).
More Treasury supply may push long rates up; size of the effect is disputed. Typical lag: years. Strongest match 24 months later (correlation 0.22, 347 observations since 1996).
An inverted 10Y-3M curve (below zero) has come before every U.S. recession since the 1960s, usually by a year or more. Typical lag: 12-24 months. The strongest pattern runs the other way: correlation 0.26 in the same period (352 observations since 1996).
Fed hikes lift short rates faster than long rates, flattening or inverting the curve. Typical lag: 0-6 months. Strongest match in the same period (correlation -0.84, 371 observations since 1996).
A wider mortgage spread makes home loans pricier even if Treasury yields don't move. Typical lag: 0-6 months. Strongest match 1 month later (correlation -0.27, 368 observations since 1996).
The 2-year yield moves with where markets expect the Fed rate to be over the next two years. Typical lag: 0-3 months. Strongest match in the same period (correlation 0.82, 371 observations since 1996).
Short Treasury bills track the Fed's policy rate almost one-for-one. Typical lag: same month. Strongest match in the same period (correlation 0.98, 371 observations since 1996).
Medium and long Treasury yields usually move together, though the gap between them shifts with the economy. Typical lag: same month. Strongest match in the same period (correlation 0.79, 371 observations since 1996).