The yield curve has flattened since last month, with long rates falling and short rates rising. The often-watched 3-year, 3-month spread and 10-year, 3-month spread stand at 65 and 86 basis points, below their historical averages of 80 and 125. This flattening suggests a slowdown of real economic growth over the next year, although the yield curve is still far from an inversion (short rates above long rates), which would signal recession. A look at the very long and very short rates confirm a pattern - that long rates account for most of the change in spread. Continuing the trend begun in April, the federal funds rate remains slightly above its target value of 5.50%.
Suggested citation: “Interest Rates,” Federal Reserve Bank of Cleveland, Economic Trends, no. 97-08, pp. 05, 08.01.1997.