Editing Business cycle (section)

=== Yield curve ===
{{Main|inverted yield curve}}
[[File:FFR treasuries.webp|thumb|375px|right|
{{legend-line|#F5A623 solid 3px|[[Mortgage loan|30 year mortgage average]]}}
{{legend-line|#F8E71C solid 3px|[[treasury bond|30 Year Treasury Bond]]}}
{{legend-line|#000000 solid 3px| 10 Year Treasury Bond}}
{{legend-line|#9013FE solid 3px| 2 Year Treasury Bond}}
{{legend-line|#4A90E2 solid 3px| 3 month Treasury Bond}}
{{legend-line|#D0021B solid 4px| Effective Federal Funds Rate}}  
{{legend-line|#E786F9 solid 4px| [[United States Consumer Price Index|CPI inflation]] year/year}}
{{color box|lightgrey}} [[List of recessions in the United States|Recessions]]
]]
[[File:10-year minus 3-month US Treasury Yields.png|thumb|10-year minus 3-month US Treasury Yields]]

The slope of the [[yield curve]] is one of the most powerful predictors of future economic growth, inflation, and recessions.<ref>{{cite journal | doi=10.1162/003465398557320|title = Predicting U.S. Recessions: Financial Variables as Leading Indicators| journal=Review of Economics and Statistics| volume=80| pages=45–61|year = 1998|last1 = Estrella|first1 = Arturo| last2=Mishkin| first2=Frederic S.|s2cid = 11641969|url = http://www.nber.org/papers/w5379.pdf}}</ref> One measure of the yield curve slope (i.e. the difference between 10-year Treasury bond rate and the 3-month Treasury bond rate) is included in the [http://research.stlouisfed.org/fred2/series/STLFSI Financial Stress Index] published by the [[Federal Reserve Bank of St. Louis|St. Louis Fed]].<ref>{{cite web|title=List of Data Series Used to Construct the St. Louis Fed Financial Stress Index|date=31 December 1993 |url=https://www.stlouisfed.org/news-releases/st-louis-fed-financial-stress-index/stlfsi-key|publisher=The Federal Reserve Bank of St. Louis|access-date=2 March 2015|url-status=live|archive-url=https://web.archive.org/web/20150402151924/https://www.stlouisfed.org/news-releases/st-louis-fed-financial-stress-index/stlfsi-key|archive-date=2 April 2015}}</ref>  A different measure of the slope (i.e. the difference between 10-year Treasury bond rates and the [[federal funds rate]]) is incorporated into the [[Conference Board Leading Economic Index|Index of Leading Economic Indicators]] published by [[The Conference Board]].<ref>{{cite web|title=Description of Components|url=http://www.conference-board.org/data/bci/index.cfm?id=2160|website=Business Cycle Indicators|publisher=The Conference Board|access-date=2 March 2015|url-status=live|archive-url=https://web.archive.org/web/20150402203219/http://www.conference-board.org/data/bci/index.cfm?id=2160|archive-date=2 April 2015}}</ref>

An inverted yield curve is often a harbinger of [[recession]].  A positively sloped yield curve is often a harbinger of [[inflation]]ary growth. Work by Arturo Estrella and [[Tobias Adrian]] has established the predictive power of an inverted yield curve to signal a recession.  Their models show that when the difference between short-term interest rates (they use 3-month T-bills) and long-term interest rates (10-year Treasury bonds) at the end of a federal reserve tightening cycle is negative or less than 93 basis points positive that a rise in unemployment usually occurs.<ref>Arturo Estrella and Tobias Adrian, ''[http://www.newyorkfed.org/research/staff_reports/sr397.pdf FRB of New York Staff Report No. 397] {{webarchive|url=https://web.archive.org/web/20150906031016/http://www.newyorkfed.org/research/staff_reports/sr397.pdf |date=2015-09-06 }}'', 2009</ref>  The [[Federal Reserve Bank of New York|New York Fed]] publishes a [http://www.newyorkfed.org/research/capital_markets/ycfaq.html monthly recession probability prediction] derived from the yield curve and based on Estrella's work.

All the recessions in the [[United States]] since 1970 (up through 2017) have been preceded by an inverted yield curve (10-year vs. 3-month). Over the same time frame, every occurrence of an inverted yield curve has been followed by recession as declared by the [[National Bureau of Economic Research|NBER]] business cycle dating committee.<ref>{{cite web|title=Announcement Dates|url=https://www.nber.org/cycles/|website=US Business Cycle Expansions and Contractions|publisher=NBER Business Cycle Dating Committee|access-date=1 March 2015|url-status=live|archive-url=https://web.archive.org/web/20071012231548/https://www.nber.org/cycles/|archive-date=12 October 2007}}</ref>

{|class="wikitable sortable"
|-
!Event !! class="unsortable"|Date of inversion start !! class="unsortable"|Date of the recession start !! Time from inversion to recession Start !! Duration of inversion !! Time from recession start to NBER announcement !! Time from disinversion to recession end !! Duration of recession !! Time from recession end to NBER announcement !! Max inversion
|-
! !! !! !! Months !! Months !! Months !! Months !! Months !! Months !! Basis points
|-
|[[Recession of 1969–70|1970 recession]] || December 1968 || January 1970 || 13 || 15 || NA || 8 || 11 || NA || −52
|-
|[[1973–75 recession|1974 recession]] || June 1973 || December 1973 || 6 || 18 || NA || 3 || 16 || NA || −159
|-
|[[Early 1980s recession|1980 recession]] || November 1978 || February 1980 || 15 || 18 || 4 || 2 || 6 || 12 || −328
|-
|[[Early 1980s recession|1981–1982 recession]] || October 1980 || August 1981 || 10 || 12 || 5 || 13 || 16 || 8 || −351
|-
|[[Early 1990s recession|1990 recession]] || June 1989 || August 1990 || 14 || 7 || 8 || 14 || 8 || 21 || −16
|-
|[[Early 2000s recession|2001 recession]] || July 2000 || April 2001 || 9 || 7 || 7 || 9 || 8 || 20 || −70
|-
|[[Great Recession|2008–2009 recession]] || August 2006 || January 2008 || 17 || 10 || 11 || 24 || 18 || 15 || −51
|-
|[[COVID-19 recession|2020–2020 recession]] || March 2020 || April 2020 ||   ||   ||   ||   ||   ||   ||
|-
|Average since 1969 ||  ||  || 12 || 12 || 7 || 10 || 12 || 15 || −147
|-
|Standard deviation since 1969 ||  ||  || 3.83 || 4.72 || 2.74 || 7.50 || 4.78 || 5.45 || 138.96
|}
Estrella and others have postulated that the yield curve affects the business cycle via the balance sheet of banks (or [[Shadow banking system|bank-like financial institutions]]).<ref>Arturo Estrella, ''[https://ssrn.com/abstract=1532309 FRB of New York Staff Report No. 421] {{webarchive|url=https://web.archive.org/web/20130921061128/https://ssrn.com/abstract=1532309 |date=2013-09-21 }}'', 2010</ref>  When the yield curve is inverted banks are often caught paying more on short-term deposits (or [[Repurchase agreement|other forms]] of short-term wholesale funding) than they are making on long-term loans leading to a loss of profitability and reluctance to lend resulting in a [[credit crunch]].  When the yield curve is upward sloping, banks can profitably take-in short term deposits and make long-term loans so they are eager to supply credit to borrowers. This eventually leads to a [[Economic bubble|credit bubble]].