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The 2s10s Is Past One Window. The Fed Considers a Hike.
Twenty-one months after the curve un-inverted, this cycle has exhausted one historical recession window and sits at the outer edge of a second. The Fed's April minutes, released May 20, show a majority willing to raise rates if inflation persists.
The Federal Reserve's April minutes, released May 20, show a majority of officials willing to raise rates if inflation persists. It marks the first time since 2023 that raising became a live option in Fed deliberations.
The 2s10s Treasury spread un-inverted in August 2024, ending a 25-month inversion that reached minus 108 basis points. That was the longest sustained inversion in FRED data going back to 1976. The spread sat at 53 basis points as of May 20.
One post-un-inversion measure, covering six confirmed episodes since 1976, puts the historical lag at 8 to 19 months; May 2026 is month 21, past that window. Goldman Sachs uses a different clock: 7 to 49 months from initial inversion, 20-month median. Counted from the April 2022 inversion, this cycle arrives at month 49, Goldman's stated outer limit.
Goldman Sachs projected 2.6% U.S. GDP growth for 2026 at the start of the year, and markets priced 50 basis points of Fed cuts by year-end. The base case was a soft landing. Bankrate's latest survey now puts average recession probability at 28%, still a minority scenario.
Rate Room
In 1990, 2001, and 2008, the funds rate sat above 5% when the post-inversion recession arrived, leaving the Fed 500 or more basis points to deploy. The rate un-inverted this cycle at 3.5 to 3.75%, and it has not moved since.
April CPI printed at 3.8%, highest since May 2023, with energy up 17.9% year-over-year. The funds rate sits below the current inflation rate, which is why cuts remain off the table.
The April 29 FOMC held at 3.5 to 3.75% on an 8-4 vote, the widest dissent since October 1992. Three of the four dissenters, Hammack of Cleveland, Kashkari of Minneapolis, and Logan of Dallas, opposed the statement's easing bias. Only Miran wanted a 25-basis-point reduction.
What the Minutes Change
The April minutes change the math on what a late-cycle downturn would mean. The Fed enters it, if it arrives, at 3.5 to 3.75%, below the current inflation rate. Three of its own members are already pushing to remove even the suggestion of easing.
The May 28 PCE release is the first checkpoint. Core PCE above 2.7% gives the three hawkish dissenters what they need to recruit four more votes; a majority runs on seven.