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Fed doesn't set rates. The market does.
An inverted yield curve can be a warning of a coming recession. Investors that are concerned about a recession bid up the price of longer term bonds which lowers the rate. They think rates will decline in future long bonds so they lock in the current higher rate now. High demand causes rate to decrease. With fewer people bidding on the shorter yields the rate must be raised to sell the bonds due to lack of demand.
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