Yield curve - Monetary x Fiscal policies conflicting

CFA Level III Economics
#1

All,

Can anyone explain why the yield curve is flat when monetary policy is restrictive but fiscal is stimulative? Also, why is it “moderately steep” when monetary is stimulative but fiscal is restrictive?

#2

Monetary affects the rates in short term more and Fiscal is more on the longer term.

  1. Higher short term rate + lower longer term rate may make the yield curve flat (restrictive monetary+ stimulative fiscal)

  2. Lower short term rate + higher longer term rate will make the curve moderately steep (stimulative monetary + restrictive fiscal)

#3

Thanks!