Evans, Fed, must be nervous about the yield curve, but the US economy is solid By Reuters

By Noah Sin

HONG KONG (Reuters) – Charles Evans, chairman of the Chicago Federal Reserve, said on Monday that it was understandable that markets were nervous when the yield curve flattened, even though he was still confident as to the prospects for economic growth in the United States.

What many see as a bad omen for the US economy, yields on 10-year US Treasury bills fell below three-month rates in Asia on Monday, a reversal that had previously signaled the risk of recession economic.

The yield curve reversed on Friday for the first time since mid-2007.

Evans described the reversal as "quite narrow".

"We have to take into account the secular decline in long-term interest rates," Evans said in a comment to the press. Swiss credit (SIX 🙂 Asian investment conference in Hong Kong, just days after the Fed announced the end of its tightening and the abandonment of its plans for further rate hikes in 2019.

"Some of these factors are structural, linked to lower trend growth, lower real interest rates," he said. "I think in this environment, it's probably more natural that yield curves are a little flatter than in the past."

On the sidelines of the conference, Evans told CNBC in an interview that he could understand why investors were more "vigilant, attentive and attentive," adding that the Fed was doing the same. But, he added, economic fundamentals were "good" and he was expecting growth of about 2% this year.

"Your first reaction is going to be" wow, it's less than what we had "and I think that's missing the message."

BREAK TIME

"In acting monetary policy outlook, Mr. Evans said that the time had come for the US central bank to pause and adopt a cautious attitude, adding that it did not provide for any rising interest rates before the second half of next year.

Evans, who voted on the interest rate policy this year, has toned down in recent months, saying monetary policy was neither accommodative nor restrictive at this stage.

"I see things are holding back inflation a bit, and I want to see inflation soar, so my own way is not to expect an increase in the fund rate. before next year, probably, in the second half, "Evans said.

In January, he said the Fed could raise interest rates three times in 2019 on the badumption that the US economy remains relatively strong.

Last week, the US central bank left its rates unchanged in a range of 2.25% to 2.5%. New forecasts showed that 11 of the 17 Fed decision makers did not expect any rate changes for the rest of the year, compared to only two in December.

This unexpected and accommodating signal has led financial markets to quickly anticipate a rate cut next year.