The second factor is indicators that normally tell us the US economy is in really good health are starting to do so.
One is the ‘current conditions’ component out of the Conference Board's Consumer Confidence Survey. Typically, when that indicator is strong, the US yield curve is not far away from flattening. The causation there is likely that confidence is a signal the Fed's tightening cycle is getting closer.
Now, that gap might be a bit longer this cycle because of the way the Fed signalling its policy stance will evolve. But that indicator was just released and it's a very strong.
The third issue is something we saw a bit of during the Fed's previous tightening cycle eight years ago – global economic divergence.
Clearly, a divergence has opened up between economies that have managed COVID-19 and/or rolled out vaccines very well. Most advanced economies, and much of Asia, are in that group.
But there's another unfortunate group with questions around their COVID-19 or vaccine management. Some of those are having quite extreme problems at the moment.
When the Fed does to taper, I don't think we'll see the long-forewarned tantrum, and certainly not to the same degree we saw in 2013. But this divergence suggests there will be some meaningful economies that struggle when the Fed starts to tighten.
That in and of itself is going to limit how steep the US yield curve can get.
Richard Yetsenga is Chief Economist at ANZ