The key point is that the yield curve has been the most reliable gauge of whether monetary policy is tight or easy. Most other metrics of the policy stance have been much less reliable. For example, a common mistake is to gauge policy by whether the Fed is raising or cutting rates. The problem with this perspective is that monetary policy can be “behind the curve.” This was consistently the case in the 1970s, when the Federal Reserve was too slow raising rates as inflation rose ever higher.
