In an environment with a lot of uncertainty and volatility, it is hard to build expectations regarding the next move by the Federal Reserve. Unprecedented levels of quantitative easing may lead investors to believe that rising inflation in the near future will force the central bank to tighten monetary policy and reverse course. Additionally, we are currently facing rising budget deficits on behalf of the federal government.

Using the liquidity premium and preferred habitat theories, explain what would happen to the yield curve under the economic conditions described here.