Money & Finance › Bonds, rates & Treasuries › The yield curve: interest rates across maturities
Yield curve inversion as a recession warning
Long inversion 2022–2024· Concept
Experts disagreeEconomists or investors genuinely disagree.
An inverted yield curve, with short-term Treasury yields above long-term ones, has come before every US recession since the late 1960s.
See it on the Money & Finance map →How it works
Inversion happens when the Fed holds short rates high while investors expect slower growth and rate cuts ahead, so they accept lower long-term yields. Economists Campbell Harvey (1986) and Arturo Estrella with Frederic Mishkin (1996) showed its predictive power. Lead times run about 6 to 24 months. The 10-year minus 2-year spread inverted from July 2022 to September 2024, the longest stretch on record, yet no recession followed through 2025.
Why it matters
It is one of the most-watched recession signals, and it squeezes bank margins, since banks borrow short and lend long.
Facts, rules and data
FRED's yield-spread data; NBER recession dates; the New York Fed's yield-curve recession probability model, updated monthly.
Debates and risks
Experts disagree whether 2022–24 was a false alarm, a long lag, or a signal distorted by QE and pandemic stimulus.
Connections (2)
▸The yield curve: interest rates across maturities can flip into Yield curve inversion as a recession warningFact, law or data
The connection
When the Fed raises short rates sharply while investors expect it to cut later, because growth or inflation will fall, short yields climb above long ones and the curve slopes down. Banks, which borrow short and lend long, then earn less on new loans and may tighten credit.
When and why
Notable inversions in 1978–80, 1989, 2000, 2006–07, 2019 and 2022–24, the last the longest on record.
How we know
Treasury yield data on FRED record each episode; Fed research tracks how often recessions followed.
Debates and risks
Whether inversion predicts recessions, helps cause them by squeezing bank lending, or simply mirrors Fed tightening is debated.
▸Yield curve inversion as a recession warning has often preceded downturns in Business cycles and recessionsExperts disagree
The connection
When short Treasury rates rise above long ones, the Fed is usually holding rates high while investors expect slower growth and future cuts. High short rates also squeeze bank lending margins. Every US recession since the late 1960s was preceded by an inversion, though not every inversion was promptly followed by a recession.
When and why
US Treasury markets, from the late 1960s through the 2022–2024 inversion; studied by Campbell Harvey (1986) and by Arturo Estrella and Frederic Mishkin (1996).
How solid is the link?
Treasury yield data line up with NBER recession dates; the New York Fed publishes a monthly recession-odds model based on the 10-year minus 3-month spread.
Debates and risks
No recession followed the long 2022–24 inversion through 2025; whether the signal broke, perhaps because of QE-era distortions, or was merely delayed is argued.