Why A Fed Rate Cut Would Steepen The Yield Curve

April 30, 5:00 pm EST

As we head into a Fed decision tomorrow, we’ve talked about the prospects of a Fed rate cut.  It’s highly unlikely.

It’s even more unlikely today, after Trump pushed for, not just a cut, but a full point cut …


Unfortunately, the influence Trump tried to wield late last year, is probably why the Fed hiked in December — just to prove to the world that they (the Fed) wouldn’t be politically influenced.

With that, we now have an economy growing at 3%+, stocks near record highs and subdued inflation.  And yet we have a ten-year yield at 2.5%.  It doesn’t fit.  The interest rate market is still sending the message that the December rate hike was a mistake.

With that, if we did get a cut by this summer, I suspect the interest rate market would adjust to reflect a more optimistic economic outlook.  By that, I mean, with a cut in the Fed funds rate, the long end of the yield curve (specifically, 10-year yields) would probably go UP not down –steepening the yield curve.

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