Econobrowser writes,
If we were to trust the expectations hypothesis at the moment, what would it tell us? The initial sharp upward slope suggests that investors expect one more Fed rate hike to come soon, perhaps the next meeting. But the fact that the yield curve then begins to slope sharply down suggests that investors are betting on rate cuts later on-- otherwise, rolling over 6-month bills at 5.23% would beat any longer-maturity bets.
And what kind of scenario would have the Fed reversing course and starting to lower rates 6 months from now? Given recent inflation observations, it's hard for me to imagine the Fed lowering rates in the near future unless we get a significant slowdown in economic activity that makes it worry a lot more about the prospects of an economic recession. [more]
