If a previously upward-sloping yield curve starts to flatten out and eventually becomes downward sloping, what would you expect?

Question

Quizplus · Accepted Answer

A flattening yield curve indicates that short-term interest rates are rising relative to long-term interest rates. This typically occurs when the central bank tightens monetary policy to curb inflation, which can lead to a slowdown or recession in the economy. In turn, this can cause stock values to decline. Therefore, if the yield curve becomes downward sloping, it suggests a higher likelihood of an economic recession.

If a Previously Upward-Sloping Yield Curve Starts to Flatten Out