Most people think the yield curve inverts before recessions because the Fed is tightening. That's backwards.

The curve inverts because the market is pricing in future rate CUTS. Short rates are high today because the Fed is fighting inflation. Long rates are lower because the market expects the Fed to capitulate once growth collapses.

The inversion isn't the cause—it's the market's forecast of the policy cycle. Tight money now → recession later → rate cuts to respond.

The recession doesn't happen during the inversion. It happens AFTER the curve un-inverts, when the Fed actually starts cutting. That's when the damage from the tightening cycle fully manifests.

We inverted in mid-2022. The curve started steepening again in late 2023. If the historical pattern holds, the recession window is now through mid-2026.

But here's the twist: this cycle has been delayed by massive fiscal stimulus. Deficit spending of 6-7% of GDP creates a floor under demand that can override monetary tightening for longer than usual.

So the question isn't "will the curve predict the recession?" It's "can fiscal policy override the signal indefinitely, or just delay it?"