than the average over the 45 years before the financial crisis. as we try to assess the implications of this flattening of the yield curve, it is important to take into account the very low level of the current 10 - year yield by historical standards. for the 20 years before the crisis, the 10 - year treasury yield averaged about 6 - 1 / 4 percent, compared with recent readings around 3 percent. one reason the 10 - year treasury yield may be unusually low is that market expectations of interest rates in the longer run may be unusually low. a second reason may be that the term premium - - the extra compensation an investor would demand for investing in a 10 - year bond rather than rolling over a shorter - dated instrument repeatedly over a 10 - year period - - has fallen to levels that are very low by historical standards. according to one estimate from federal reserve board staff, the term premium has tended to be slightly negative in recent years. by contrast, when the spread between the 10 - year and 3 - month treasury yields was at its peak in early 2010, this measure of the term premium was close to 100 basis points. 9 see kim and wright ( 2005 ) for technical details ; the latest estimates are available on the board ’ s website at https : / / www. federalreserve. gov / pubs / feds / 2005 / 200533 / 200533abs. html. - 8other things being equal, a smaller term premium will make the yield curve flatter by lowering the long end of the curve. with the term premium today very low by historical standards, this may temper somewhat the conclusions that we can draw from a pattern that we have seen historically in periods with a higher term premium. with a very low term premium, any given amount of monetary policy tightening will lead to an inversion sooner so that even a modest tightening that might not have led to an inversion in the past could do so today. there are a number of possible explanations of the low level of the term premium. the asset purchases of the federal reserve and other central banks may be contributing factors. the goal of these policies was to lower longer - term interest rates - - and in many cases, expressly by lowering term premiums. a number of studies suggest that these polices have indeed been successful in lowering term premiums. 10 a second reason the term premium may be lower than in the past is the changing correlation between stock and bond returns, likely caused by changes in expected inflation outcomes.

pce data are somewhat encouraging, we will typically much lower - - around 2 percent today - - compared with high school noncompleters - - currently around 6 percent. - 5want to see inflation coming in around target on a sustained basis after seven years of below - target readings. as i have noted before, the persistence of subdued inflation, despite an unemployment rate that has moved below most estimates of its natural rate, suggests some risk that underlying inflation - - the slow - moving trend that exerts a pull on wage and price setting - - may have softened. 5 for example, some survey measures of longer - run inflation expectations are currently lower than they were before the financial crisis, as are most estimates based on statistical filters. inflation compensation has moved up recently but is still running somewhat below levels that prevailed before the crisis. re - anchoring underlying inflation at the federal open market committee ’ s ( fomc ) 2 percent objective is an important goal. recent research has highlighted the downside risks to inflation and inflation expectations that are posed by the effective lower bound on nominal interest rates, and it underscores the importance of ensuring underlying inflation does not slip below target in today ’ s new normal. 6 in that regard, if we were to see a mild, temporary overshoot of the inflation target, this could well be consistent with the symmetry of the fomc ’ s target and may help nudge underlying inflation back to target. 7 in short, it is reassuring to see core pce inflation moving up, along with marketbased measures of inflation compensation retracing earlier declines. after seven years of below - target inflation, it will be important to see inflation coming in around target on a sustained basis to be confident that underlying trend inflation is running at 2 percent. see brainard ( 2017, 2018 ). see, for example, kiley and roberts ( 2017 ), nakata and schmidt ( 2016 ), and brainard ( 2015, 2016 ). see board of governors ( 2018 ) and brainard ( 2018 ). - 6the yield curve even though longer - term treasury yields have moved up, on net, since the beginning of the year, there has been growing attention of late to the possibility of an inversion of the yield curve - - that is, circumstances in which short - term interest rates exceed long - term interest rates on treasury securities. historically, yield curve inversions have had a reliable track record of predicting recessions in the united states.