Key Economic Indicator Suggests The Economy Is Sliding Towards Recession

Economists are concerned that a recession could be nearing based on a key economic indicator. Over the past few days, the yield curve on bonds has inverted as investors worry that the coming interest rates hikes will cool economic growth as the Federal Reserve tries to tackle rising inflation.

"The harder the Fed steps on the brakes, the higher the probability the car seizes up, and the economy goes into recession," Moody's Analytics chief economist Mark Zandi told CNN Business.

An inverted yield curve occurs when the interest rates on short-term bonds surpass that of long-term bonds.

On Monday (March 28), the yield on five-year bonds topped out at 2.63%, while the yield on 30-year bonds dropped to 2.60%. On Tuesday, the same thing happened as the ten-year yield fell to 2.383% while the two-year yield rose to 2.387%. The yield curve reverted before trading ended.

The spread between the five-year and ten-year Treasury notes also inverted earlier in the month.

According to CNN, a yield curve inversion has occurred prior to every recession over the last 50 years. The last time the yield curve inverted was in 2019. That was followed by a recession in 2020 due to the coronavirus pandemic. Before that, the yield curve inverted in 2005, which preceded the recession that started in 2007.