On Wednesday, the Dow Jones Industrial Average plunged 800 points — marking its worst dip all year — after a rare inversion of Treasury market yields sounded alarm bells.
But economists like Janet Yellen, former chair of the Federal Reserve, are cautioning that this indicator, known as the inverted yield curve, may no longer hold water.
“Historically, it has been a pretty good signal of recession, and I think that’s when markets pay attention to it, but I would really urge that on this occasion it may be a less good signal,” Yellen told Fox Business.
Yellen was referring to the yield on 10-year Treasury notes briefly dipping below the yield on the 2-year note on Wednesday. Such inversions have accurately predicted all seven recessions of the last 50 years.