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A possible strategy for central banks: Inverting the yield curve
Central banks have two monetary policy instruments: short-term interest rates (which determine the general level of interest rates) and bond purchases (which determine the slope of the yield curve). In the present circumstances, one might think that the optimal policy of central banks is to: Significantly raise short-term interest rates to signal that they are indeed fighting inflation and to curb consumption and debt in the short term; Manage the size of their balance sheets in order to limit the rise in long-term interest rates and so as not to negatively affect investment and potential growth. This strategy would therefore gradually lead to an inversion of the yield curve, obviously with a cost for central banks and banks.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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