Wednesday, November 28, 2007

The yield curve is telling us that investors expect the following:
1. no recession (the 3-mo./10-yr. spread is positive)
2. modest inflation (the 10-yr./30-yr. spread is slightly positive)
3. slow growth (GDP a year from now is expected to be about 2.9% based on the above spreads)
Not exciting but not the end of the world either!

3 comments:

Anonymous said...

GDP one year ahead is at 3.16%. The party in power has to inflate the economy going into a recession. So what is the long term GDP average?

Kumbu said...

oops! "going into and election" was my intended word.

Deborah said...

Dear Westridge,

The party in power certainly has an incentive to inflate and prevent a recession during an election year! Long-term GDP average may exceed 3.25% for a while. We'd need structural changes such as population growth and productivity gains to sustain GDP above its mean.