If you lend me $100 and want repayment tomorrow, there is a near certainty you will get repaid.  If you lend me $100 and want repayment in 30 years, there is the additional risk that I could die, go crazy, go bankrupt, or disappear and fail to repay you.  The point is that the longer the term, the greater the risk, and you should be compensated for taking greater risk.  That is the reason long term rates are normally higher than short term rates.  (This is called the yield-curve, with long-term rates higher than short-term rates.)

Currently, there is considerable discussion about an interest-rate-inversion, meaning short-term rates are higher than long-term rates.  Some pundits argue the all-knowing “market” is signalling a recession in the near future.  Of course, that is true . . . somewhat.  Economists joke that interest-rate-inversions have accurately predicted eight of the last five recessions.

When the Fed wants to increase interest rates for whatever reason, it has good control over short-term rates but only minimal control over long-term rates.  When the Fed increases short-term rates, it may invert interest rates, and that may or may not induce a recession.  Such an interest-rate-inversion may suggest the Fed is too aggressive.  However, a minor inversion for a short time means nothing . . . except for those who positively need something else to worry about.

Of course, there is ALWAYS a recession out there somewhere, sooner or later.  Despite the current inflation and the war, I don’t see a recession in the near future, especially with the job market so tight and with corporate earnings holding up so well.  Whenever a recession does get here, we will say it was accurately predicted by this interest-rate-inversion . . . sooner or later?