The current economic expansion is now well over five years of age. To judge by the comments of Fed Governor Frederic Mishkin on Friday, one could reasonably assume that celebrating a sixth anniversary is a distinct possibility.
Yes, the expansion during the last year “appears to have been undergoing a transition to a more moderate and sustainable pace,” he advised at a conference at The Levy Economics Institute of Bard College in Annandale-on-Hudson, New York. But the jig is not yet up, he suggested. “Looking ahead,” Mishkin said, “the most likely outcome for the coming quarters is, in my judgment, a continued moderate rate of economic expansion….”
How then does one square Mishkin’s modestly upbeat forecast with the fact that the yield curve remains inverted by more than a trivial amount? As of Friday’s close, the benchmark 10-year Treasury yield was 4.67%, or nearly 60 basis points below the Fed funds rate of 5.25%.