Long-term yield curve deviations could impact US economy and financial markets
The Taylor rule yield curve extends a policy rate rule to predict future interest rates. It helps understand the monetary policy stance using market rates when the federal funds rate is low. Differences between expected and market rates for longer maturities can affect output and inflation, even during unconventional monetary policy. These differences can also show risk appetite in financial markets. The method can be used in other countries facing similar situations with available data on economic forecasts.