Warning signs of a recession?

The average small business owner isn’t watching hours of CNBC or reading the Wall Street Journal every day. There has been some buzz in the financial world recently about the spread between the 2-year and 10-year treasury yields. The worry is that the spread is incredibly thin, meaning that the investment community is showing concerns over the economic outlook a few years from now. In a normal environment, you would expect to see the 10-year rate well above the 2-year rate, implying that investors believe the economy will continue to grow at a steady rate over time. If the 10-year rate dips below the 2-year rate, economists describe this as an “inverted yield curve” and it is one of the strongest predictors of an upcoming recession. We’re not there yet, but investors are concerned the Federal Reserve will need to hike rates more quickly than anticipated in order to combat inflation, and this could send ripple effects through the economy.

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