The yield curve is strongly positive, and this is getting all kinds of blog comments.
They range from Arnold Kling saying “in my view, this is perfectly rational, and it shows that the short-run effect of the fiscal stimulus is negative”
To Greg Mankiw saying “that it signals future economic growth. In many ways, however, this is an unusual downturn, so it is not entirely clear to what extent historical relationships are a useful guide going forward’
It looks to me like a very normal cyclical development. For example according to this traditional indicator of what drives the yield curve the surprise ought to be that the yield curve is so flat.
I’m inclined to go along with Mankiw on this one and can not understand how this support Kling’s conclusion that this demonstrates that the impact of fiscal stimulous is negative.
After responding in the comments section I thought I would add this chart to demonstrate my point. At the bottom in December the bond market was discounting a deflationary, depression.
Now it is discounting an economic recovery. It is a normal cyclical development.