Do the markets exaggerate the recessionary signals of the yield curve?

US bond yields

Over the past two months, there has been talk of the US Treasury's inverse yield curve, a sign of the impending recession. Recently, longer-term US bond yields have fallen below short-term bond yields for the first time in more than a decade. This prompted President Donald Trump and his chief economic advisor, Larry Kudlow, to ask the Federal Reserve to immediately reduce interest rates.

Perspective of the Federal Reserve

Earlier in the day, while answering a question about the reverse yield curve, New York Federal Reserve Chairman John Williams did not consider the yield curve an "oracle", according to a report. from CNBC.

Williams believes the yield curve is "like other market indicators" and points to "heightened concerns about risks to the outlook." He thinks the US GDP and job market are "very strong" in the second quarter, but have not done so yet. deny the possibility of a short-term rate reduction.

Warren Buffett's thoughts

Earlier this year, Warren Buffett, a world-renowned investor and chairman of the board of directors and chief executive officer of Berkshire Hathaway (BRK-B), unveiled his approach to the issue of Treasury yields.

Buffett said at a charity event on March 28: "The lowest bond yields are going, the most attractive stocks are a long-term investment and what's being said over the next three months , six months or a year, I do not know, and I really do not care.

Why are investors worried then?

On June 4, Fed Chairman Jerome Powell said the central bank was ready to make adjustments to monetary policy if needed to keep the US economy on track.

Powell's assurance on monetary policy measures is a relief for investors, but they still can not ignore the reverse bond yield curve, especially due to escalating geopolitical and trade tensions, which could seriously hurt investors. to the economy.