Yield Curve Flattening. Can the Fed afford to pull the trigger??

The U.S. Yield Curve (US10Y-US02Y) flattening is a textbook sign of recession. However the S&P500 (blue trend-line) keeps recovering and rising from the 2022 Inflation Crisis. At the same time, the Inflation Rate (black trend-line) may have taken a pause but is on a strong decline, while the Interest Rate (orange trend-line) is turning sideways.

The question on everyone's mind is this: "Can the Fed afford to pull the trigger and start lowering rates again?". There is no easy answer to this. Recent history on this chart shows that a rising curve along with lowering interest rates and inflation decline is correlated with Bear Cycles. Notable examples are 2007 - 2008 and 2000 - 2001. At the same time notable exception is 2020. In 1995 both Interest and Inflation rates turned sideways so the stock market extended the aggressive rally into the DotCom bubble.

In 1989 - 1990 however, the Curve flattening coincided with a non-stop drop on the Interest rate while in late 1990 Inflation also started to drop. The stock market didn't enter any Bear Cycle but insted kept rising slowly but steadily. Approximately what is taking place now. Do you think we are in a same pattern and stocks will be unfazed if the Fed starts lowering the rates?

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