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 inverted on May 14th, and inversion has preceded every recession since 1954, according to independent economist, Fritz Meyer.
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.
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