The strength of the economy is sending a message to President Trump, which can concern his administration. Yield curve, a gap between long- and short-term interest rates on Treasuries, has been narrowing as the bond market has become increasingly unpredictable.
This doubt is about the post-election, in the absence of clear fiscal policy, whether confidence and expectations for faster economic growth are sustainable. With this, Federal Reserve officials have stated that they can also increase their benchmark interest rate at least two more times in a year.
As investors are seeking less compensation for the risks, economists are viewing a tightening yield curve of growth slowing down. According to the wider curve, investors are pricing in the potential for faster expansion and price pressure. The yield curve that was widened dramatically post-election has been steadily contracting since December.
Economists are viewing Trump’s 4% growth rate pace as unachievable. With a plan to cut taxes and put on the back-burner for overhaul health care, Trump and his advisers are yet to offer evidence to contradict this perception.
“Long rates are determined primarily by the market, and short rates are determined by the Fed. The narrowing yield curve “suggests the confidence in the expansion is eroding a little bit.” At the same time, “traders believe the Fed is more likely to err on the side of crushing growth to prevent inflation,” said Chris Low, chief economist at FTN Financial.