Higher interest rates make it more expensive for companies and individuals to borrow money, while an inverted curve can result in less lending by banks, all of which hurts the economy.
The Fed’s own estimates of where the economy will be by the end of the year have improved since the spring, suggesting the U.S. may avoid a recession.The U.S. stock market, after a panic during the most aggressive phase of the Fed’s monetary tightening, is back in bull market territory. Markets for riskier assets such as stocks and corporate credit have also reflected this optimism. The blue-chip S&P 500 share index is up about 14 per cent this year, though many analysts have attributed this rally to the growth in stocks tied to the boom inMeanwhile credit spreads — the premium investors demand to hold riskier corporate debt over risk-free Treasuries — have fallen on both junk-rated and investment-grade bonds in recent months.
The divergence may also be attributable to the muted impact, so far, of the yield curve inversion on big banks. Banks typically borrow at shorter-term rates and lend at longer-term rates.Article content