Wil­liams: Fed Shouldn’t Fear In­verted Yield Curve

The Bond Buyer - - Market News -

The Fed­eral Re­serve shouldn’t hes­i­tate to in­vert the yield curve if rais­ing short-term in­ter­est rates above long-term yields be­comes nec­es­sary to achieve the U.S. cen­tral bank’s tar­gets, New York Fed Pres­i­dent John Wil­liams said.

“We need to make the right de­ci­sion based on our anal­y­sis of where the econ­omy is, and where it’s head­ing, in terms of our dual man­date goals,” Wil­liams said Thurs­day while speak­ing to re­porters af­ter an event in Buf­falo, N.Y. “If that were to re­quire us to move in­ter­est rates up to the point where the yield curve was flat or in­verted, that would not be some­thing I would find wor­ri­some on its own.”

Over the last six months, the yield on 10year Trea­sury notes has fluc­tu­ated around an av­er­age of 2.9%, while the yield on the two-year note — which is more sen­si­tive to ex­pec­ta­tions about the fed­eral funds rate — has risen about 0.4 per­cent­age point. As a re­sult, the spread be­tween the two, known as the yield curve, has com­pressed to about the nar­row­est level since 2007.

“In think­ing about the his­tor­i­cal ex­pe­ri­ence of the yield curve, we do have to be cau­tious about ap­ply­ing it to this cur­rent sit­u­a­tion,” he said. “We and other cen­tral banks around the world have taken ag­gres­sive ac­tions to buy lots of long-term as­sets, which has ar­guably pushed down the term pre­mium, or the yield, on 10-year Trea­suries.”

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.