Monetary Policy Remains Too Tight
This yield curve inversion sends an important signal to Federal Reserve (Fed) policymakers. U.S. monetary policy is clearly still too tight, even after last month’s 25 basis point (0.25%) rate cut, given trade uncertainty and signs of slowing global growth. The Fed has promised flexibility, and we expect policymakers to enact one or two more cuts by the end of the year. Without an easier Fed, the U.S. dollar may stay elevated and global buying pressure will continue in Treasuries.
What’s Next?
We will continue to monitor the yield curve and incoming economic data. For now, we think the current U.S. economic expansion, now in its 11th year, has more room to run.
John Lynch is chief investment strategist for LPL Financial.