Yield Curve Control



August 25, 2023

Yield Curve Control is a policy approach in which a central bank, like the Federal Reserve, intervenes in the bond market to target specific interest rate levels for certain maturities to achieve a desired shape of the yield curve. In practice, this involves the central bank setting a target rate for specific bond maturities, then buying short-term and/or selling long-term bonds to influence interest rates and align them with the set targets. The objective is to prevent or correct an inverted yield curve, often seen as a predictor of economic downturns. Implementing YCC can expand the central bank's balance sheet and potentially increase the money supply. While YCC aims to promote economic stability, there's a risk it could intensify inflation in a stagnating economy, a scenario known as stagflation.


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