Academic finance makes a lot of use of the capital asset pricing model (CAPM), but is it compatible with Austrian economics? Indeed, Austrians do have something to say, thanks to Mises and Rothbard and Austrian capital theory.
Paul Krugman denies that the Fed artificially suppressed interest rates. As usual, Krugman neither understands interest rates nor the effects of inflationary policies.
Economists have failed to explain the mechanism by which an inverted yield curve signals an impending recession. But the Misesian explanation of the business cycle quite easily explains the pattern we observe in interest rates.
Fed chairman Jerome Powell recently claimed they were "targeting" the "neutral" interest rate. The Fed cannot set or even know that rate, for it doesn't come from government authorities.
Thanks to the Fed's monetary gyrations, we are seeing the yield curve acting abnormally. However, one cannot get something from nothing and market forces ultimately will frustrate the Fed's designs.
