What type of yield curve is associated with both loose monetary and fiscal policy?

A steep yield curve is typically associated with both loose monetary and fiscal policy. When monetary policy is loose, central banks lower interest rates or maintain low rates to encourage borrowing and spending. This environment often leads to a higher demand for longer-term investments, pushing up their prices and thus lowering their yields. Meanwhile, fiscal policy that is expansive usually involves increased government spending or tax cuts to stimulate the economy, which can heighten expectations for future economic growth.

As investors anticipate greater economic activity, inflation expectations may also rise, contributing to an upward slope of long-term yields compared to short-term yields. This results in a steep yield curve, characterized by a greater difference (spread) between short-term and long-term interest rates. In contrast, other types of yield curves, such as flat or inverted, indicate different economic conditions, typically reflecting a lack of growth expectations or impending economic slowdowns, which are not characteristic of the combination of loose monetary and fiscal policies.