The way to think of a flattening yield curve is as a signal that the market expects Fed tightening to precipitate a slowdown that halts or even reverses future hikes. It's the market's way of saying they expect the Fed to tighten and then to stop tightening when weak data are released that result from the Fed's tightening.
As you know by now, the way I think of Fed hikes is different than most people. I think of them as adding to interest income and pulling forward credit demand in the initial tightening phase. And that actually accelerates growth at first.
Only later, when the increase creates distress for marginal borrowers does the rate hike train actually 'tighten'. Right now, we are in the accelerant phase of tightening. And I am expecting this to move to weakness in 2019.
But now ...
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Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.