Traders work before the closing bell at the New York Stock Exchange on August 14, 2019.

Traders work before the closing bell at the New York Stock Exchange on August 14, 2019.

A financial measurement known as the yield curve inverted on Wednesday morning, causing sections of the financial (and political) press to signal concern for the U.S. economy.

Usually trending upward, the yield curve’s inversion means that the prices of different kinds of U.S. Treasury bonds, when graphed, are going to arrange themselves in an unusual way, which should have policymakers worried, according to Vox.

So for the curve to invert implies that investors are forecasting that something unusual will happen. Something that will push future interest rates down low enough to justify long-term yields being low despite the risks. Something like a future collapse in private sector investment demand that makes government borrowing cheap. Or something like a series of Federal Reserve moves to try to reduce interest rates and spur more economic activity.

In other words, a future recession.

History shows that a recession has followed every time that the values of a two-year yield and a 10-year yield invert.

Is a recession necessarily on the horizon? And what does all this talk about yield curves mean for you and your money?

We answer these questions.

Produced by Paige Osburn.

Guests

  • Greg Ip Chief economics commentator, The Wall Street Journal; author of "Foolproof: Why Safety Can Be Dangerous and How Danger Makes Us Safe"; @greg_ip

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