A gauge of U.S. economic health closely watched by the Federal Reserve is flashing warning signs for the second time this year.
The near-term forward spread, which reflects the difference between the forward rate implied by Treasury bills six quarters from now and the current three-month yield, fell back below zero on Friday for the first time since January. While it’s since edged back into positive territory, a negative reading indicates market expectations of monetary policy easing during the next 12 to 18 months.
Its last foray below zero marked the first time that’s happened in a decade, and preceded Chairman Jerome Powell’s signals that the central bank was in no rush to hike interest rates.
“The near-term forward spread is a guide on how the market perceives Fed policy,” said Gary Kirk, a partner and portfolio manager at TwentyFour Asset Management LLP in London. “Despite the dot-plots, the market is currently expecting a rate cut in 2020.”