Does the yield curve predict recessions?

In the United States, an inversion of the yield curve has preceded each of the recessions since the 1970s. Researchers at the Federal Reserve have long studied this, and the 3-month/10-year spread in particular has a strong forecasting record at horizons of about a year.

Walk through the modern episodes and the pattern repeats:

• 1989–90 — the curve inverted ahead of the early-'90s recession, then re-steepened sharply as the Fed cut.
• 2000 — the 2s10s inverted as the Fed hiked into the dot-com bubble; the recession followed in 2001.
• 2006–07 — a long, shallow inversion preceded the 2007–09 Global Financial Crisis.
• 2019 — a brief inversion preceded the 2020 downturn, though COVID, not the curve's underlying signal, was the trigger.
• 2022–23 — the deepest inversion in four decades, a direct consequence of the fastest Fed tightening cycle since the early 1980s.

The mechanism isn't magic. An inverted curve reflects a market that expects the Fed to cut rates — which usually means it expects the economy to weaken. It also tightens conditions on its own: when banks borrow short and lend long, an inverted curve squeezes the profitability of new lending, which can slow credit growth and feed back into the real economy.

• Direction, not date. The lead time has ranged from roughly six months to two years. The curve says "pressure is building," not "mark your calendar."
• Re-steepening is part of the script. The curve often turns positive again shortly before a recession starts, as the market begins pricing the cuts. An un-inversion is not an all-clear.
• One input among many. Pair it with credit spreads, the labor market, and earnings. No single indicator is a crystal ball — including this one.

Reading about lead-lag relationships is one thing; seeing them is another. The YieldCurve AI timeline shades official NBER recession periods right on the scrubber, so you can line up each inversion against the downturn that followed and judge the timing yourself.