Amid Signs Of Weakness, Fed Reverses Course; Stocks Rally
Uniformly positive economic fundamentals of early May suddenly turned mixed, the Federal Reserve abruptly reversed course, and stocks rallied this past week. Here's what's happening.
The yield curve is the difference between the rate at which the Fed lends to banks and the rate on a 10-year U.S. Treasury bond. Since banks make money by borrowing from the Fed at the three-month T-Bill rate and lending it at a longer-term rate, the inversion destroys a bank's incentive to lend, and economic activity slows.
"I'd like first to say a word about recent developments involving trade negotiations and other matters," said Mr. Powell, before delivering his planned speech on longer-term policy matters. "We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2% objective."
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