With Yield Curve Inversion; Pressure on Fed to Cut 50 Bps

Federal Reserve Board policymakers were unusually quiet last week during the dog days of summer. I’m assuming some were vacationing. (There was an unconfirmed report that chairman Jerome Powell put out a gag order.) But if Fed folks thought it’d be an easy summer week, they were wrong.

Indeed, it just might turn out to have been the most important week of the year for the Fed and, consequently, for markets, too. If you don’t know that the yield curve inverted briefly last week, then you were perhaps too busy navel gazing with your headphones securely glued to your ears. On Tuesday the yield spread between the 2-year U.S. Treasury note and the 10-year went negative briefly, to the tune of a few basis points, and all hell broke loose. It was as if the salmon were running, as the bears showed up en masse and the stock market dropped like a felled heavyweight, 3% in one day. (For more on that see page 1.)

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