FeD’S BuLLARD wARNS OF ReCeSSION RISK IN RAISING RAteS

WYOMING: St. Louis Federal Reserve Bank President James Bullard on Friday raised new alarm bells over the US central bank’s plan to keep raising interest rates, warning that even one more rate hike could set the stage for recession. Bullard, who spoke to Reuters on the sidelines of a conference here for global central bankers and economists, said the yield curve on US Treasuries suggests investors see slower growth after this year and no danger of inflation ahead. Earlier in the day, Fed Chair Jerome Powell gave a talk signaling more interestrate hikes are ahead, and the yield curve reached its flattest since before the financial crisis. Part of Powell’s rationale for raising rates is that with unemployment at 3.9%, inflation will not stay low forever, so rates need to rise somewhat. “The thing is, we would be deliberately inverting the yield curve, because we think our models are right and we think the market’s wrong,” Bullard said. “We don’t have to do that, we don’t have to walk the plank in this situation because inflation is not high, inflation expectations are not exploding. “We can afford to wait and see and inflation does start to move up, well, we can move up,” he added. An inverted yield curve, when short-term borrowing costs rise above long-term ones, has preceded nearly every US recession in recent memory. After Powell’s remarks, traders narrowed the gap between two-year and 10-year Treasuries US2US10=TWEB to 19 basis points, the lowest since 2007. That is less than the 25 basis points by which the Fed is expected to raise its benchmark short-term rate in September and again in December.