Since 2008, the price of money has equaled next to nothing. Although it sounds like the beginning of a riddle, we mean the governor on the price of borrowing money — the fed funds rate — hovered near zero for most of the past 15 years. This ultra-accommodative policy “worked” as it achieved the Federal Reserve’s (Fed’s) dual mandate of price stability and maximum employment. However, this extended period of easy money did not come without strings attached, a reckoning we are experiencing today.

Key Takeaways

  • As the Fed chases inflation by sharply raising interest rates, this abrupt reset of monetary policy is causing market volatility, and the economy could be teetering on the edge of contraction. The inverted yield curve sheds light on where we might be headed.
  • While the yield curve cannot be interpreted in isolation, it is an important leading indicator for the economy and a lens through which to determine the value of risk-bearing assets.
  • We believe this long period of low interest rates has skewed the perception of the true cost of money, which has implications for investors across asset classes.

Strategy Insights Second Quarter 2023