Why is the curve in early expansion flatter at the long end. If we expect inflation to increase shouldn’t it be more upward sloping?
Flattening or steeping is mainly depends on the short term interest rate which is regulated by the government.
After the recovery phase, the economy goes to early expansion phase, the government withdraws stimulus, the interest rates start going up, thus, the yield curve is flattening.
As the economy activities goes overheating, the government would raise the short term interest rate to cool the inflation rate. The yield curve still going flattening.