Fed chair Powell might have produced a dovish tilt at the end of last week but that's not stopping the yield curve from steepening further. But what does this all mean exactly? Well, let's take a look to try and make sense of what is going on.The yield curve between the US 10-year and 2-year yields is now at its steepest since May while the yield curve between US 30-year and 2-year yields is now at its steepest since 2022. It is clear of the direction this is all heading and has been going since last year. That said, this is coming despite getting confirmation of the Fed stance of wanting to ease monetary policy and the fact that inflation has come down from the highs previously.So, what gives?In simple terms, it reflects the notion that the market is factoring rate cuts in the short-term but in the long-term is still pricing in a inflation/growth premium. In this case, I would argue that it is mostly about inflation.As the Fed pursues a rate cut in September, they seem to be looking to spin the narrative to frame inflation in the same 'transitory' manner that most central banks did during the Covid pandemic rebound/boom. In this case, the word they seem to be adhering to is 'temporary'. And clearly from what we're seeing, the bond market is not quite buying that.In thinking about the steepening of the yield curve, it's a signal that the Fed might be making a policy mistake. The result of what we're seeing now is akin to a bull steepener, but one that is playing out not because of slowing inflation but rather stagflation risks. It's a unique scenario in that sense that one could easily overlook.As market players anticipate a softer economic outlook and more stubborn inflation, the Fed reaction function is what will define the shape of the yield curve. And in signaling rate cuts for next month, it's easy to see why short-term yields will fall but long-term yields hold up a bit better because inflation expectations remain elevated.The risks associated here are nothing quite like the 1970s I would imagine. However, the parallels we're seeing in terms of how the events are playing out are rather uncanny.So, keep this in mind when looking at broader market sentiment as well. The Fed continues to focus more on honouring the Fed put it would seem more than anything else. But at some point, you have to pay the piper. And the bond market is saying that the bill is starting to stack up now.And guess which asset class would stand to benefit from this the most? Oh, yes. Gold again. That's another major tailwind for the commodity and why there remains such a bullish fundamental case for gold. 💪 This article was written by Justin Low at investinglive.com.