The Yield Curve and Predicting Recessions

"Economists and financial markets closely monitor interest rates in hopes of gleaning information about the path of the economy. One measure of particular interest is the “yield curve.” Recently, the yield curve associated with U.S. Treasuries inverted. This Insight discusses possible explanations for the inversion, including whether the inversion is signaling that the economy will enter a recession.

What Is the Yield Curve?

A yield curve plots the interest rates on various short-term, medium-term, and long-term bonds by the same issuer. Normally, short-term interest rates are lower than longer-term interest rates for a variety of reasons, producing an upward-sloping yield curve. For example, Figure 1 shows the Treasury bond yield curve on February 5, 2015; as the maturity date lengthens, the yield is higher at each point on the curve..."
Yield curve