For one thing, inverted yield curves are bad for banks and for investors who do the same thing as banks.
That is, the main thing banks do is borrow short-term (demand deposits, 2-year CD) and lend long-term (5 year car loan, 30 year fixed mortgage.) Conventionally long-term interest rates are more than short-term interest rates so you can make money this way.
With an inverted yield curve you can't make money that way.
Since banks are important to the flow of capital in the economy, something that hurts the banks can hurt the wider economy.
That is, the main thing banks do is borrow short-term (demand deposits, 2-year CD) and lend long-term (5 year car loan, 30 year fixed mortgage.) Conventionally long-term interest rates are more than short-term interest rates so you can make money this way.
With an inverted yield curve you can't make money that way.
Since banks are important to the flow of capital in the economy, something that hurts the banks can hurt the wider economy.