ANALYSIS-U.S. yield curve prices for Fed tightening, shows fears of policy error

In this case, investors believe the flattening yield curve reflects worries that the Fed has already let inflation get out of control by being slow off the mark in raising interest rates and risks hurting growth as it hurries to catch up.

NEW YORK: A dramatic flattening in key parts of the U.S. Treasury yield curve is reflecting worries that the Federal Reserve has been too slow to raise interest rates and will now risk causing a recession by tightening monetary policy too aggressively.

The gap between yields on two-year and 10-year U.S. government debt is the smallest since July 2020 and compressed by 20 basis points after data on Thursday showed the strongest annual inflation in four decades last month. Investors watch the yield curve for insight into the U.S. economy. An inverted curve, where rates on short-term government debt exceed those on longer-term debt, has reliably predicted past recessions.