Assessing the Risk of Yield Curve Inversion: An Update: a presentation at the Glasgow-Barren County Chamber of Commerce Quarterly Breakfast, Glasgow, Ky

James Bullard

No 317, Speech from Federal Reserve Bank of St. Louis

Abstract: In Glasgow, Ky., St. Louis Fed President James Bullard talked about the possibility that the yield curve would invert, which he first discussed in a speech on Dec. 1, 2017. ?Since then, events have transpired that have flattened the yield curve further, and imminent yield curve inversion in the U.S. has become a real possibility,? he said. In particular, Bullard commented that there is ?a material risk of yield curve inversion? over the forecast horizon (about 2 years) if the FOMC continues on its present course for raising the fed funds rate, as suggested in the June 2018 Summary of Economic Projections. Such an inversion?whereby short-term interest rates exceed long-term interest rates?is a ?naturally bearish signal for the economy,? he said. He noted that yield curve inversion is best avoided in the near term by caution in raising the fed funds rate. ?Given tame U.S. inflation expectations, it is unnecessary to push monetary policy normalization to such an extent that the yield curve inverts,? he said.

Pages: 33 pages
Date: 2018-07-20
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