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Last week, the U.S. stock markets suffered their worst day of the year, in response to the inversion of the yield curve, a key economic indicator. This inversion occurs when the yields on bonds with a shorter duration are higher than the yields on bonds that have a longer duration. It can signal that a recession is on the way.
WFMZ asked Julie Smith, associate professor of economics, to weigh in.
“If we look at the overall state of the U.S. economy, it’s relatively strong,” she said. “Correlation is not causation. Now that inversion may take place somewhere—you know six months to two years before we actually have the start of a recession.”