What Fed officials are saying about the flattening yield curve

WASHINGTON: Federal Reserve officials have got the flattening yield curve on their radar screen but policy makers have different ways of looking at the situation.

Some worry about further rate hikes causing it to invert while others view the process as a normal part of monetary policy normalisation as the economy picks up steam.

With the spread between 5- year and 30-year Treasuries narrowing last week to the lowest levels in more than a decade, here are some of their recent comments:

James Bullard, president of the Federal Reserve Bank of St. Louis, said the central bank’s policies are to blame for the flattening and it should take care not to invert the curve by aggressive rate hikes.

Bullard is not a voter this year and opposes further rate hikes. Bullard said on May 11 that it’s getting close to “crunch time” on yield curve inversion.

Dallas Fed chief Robert Kaplan, speaking on May 4, said that “it would give me great pause” if raising rates would invert the yield curve. Kaplan doesn’t vote on monetary policy this year.

Chicago Fed’s Charles Evans, speaking on April 20, said the yield curve is less of a concern than it had been a few months ago, given the increase in deficits that’s being reported and additional funding needs. Evans does not vote on policy this year.

Fed governor Randal Quarles, speaking April 18, said “I’m not viewing the current flattening of the yield curve as a particular signal of recession.”

John Williams, who will become New York Fed president in June, said on April 17 that a truly negative yield curve was a powerful recession warning but “the flattening of the yield curve that we’ve seen is so far a normal part of the process, as the Fed is raising interest rates, long rates have gone up somewhat.”

Williams, now head of the San Francisco Fed, votes on policy this year.

A Fed study released on April 3 found that an inverted yield curve remains a powerful signal of a looming recession and that is still the case even if the current ultra-low level of US interest rates are taken into account

Philadelphia Fed boss Patrick Harker, speaking on March 29, said he expects the yield curve to steepen over the medium term, but “if that doesn’t occur in a way that I anticipate, then I’d be willing to slow the pace of increases.” Harker doesn’t vote on policy this year. Eric Rosengren, president of the Boston Fed, said Jan 12 that a flatter yield curve doesn’t signal a recession and “I actually am not as worried about it.” — Bloomberg