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Bloomberg
Boston Fed President Eric Rosengren said on Tuesday that market fluctuations this summer masked the fact that US economic conditions remain "relatively benign".
Rosengren, one of two Fed officials who voted against the Fed's interest rate cuts in July, said he was not too concerned about the Dow Jones Industrial Average's 800-point drop on a day.
DJIA, -1.08%
mid-August or "inverse yield curve" on the bond market.
When 10-year Treasury Note yields are lower than short-term rates, the yield curve is "inverted". In the past, it was a reliable indicator of depressed economic conditions. Many Fed officials believe this remains a good signal.
See also: 5 things investors need to know about a reverse yield curve
In a speech at Stonehill College's Leo J. Meehan School of Business, Rosengren said he was giving less credit to the reverse yield curve this year, as it was the longest part of the curve that was falling. . Long-term rates are controlled by the market, he said.
In recent years, the opposite has reversed the end of the curve in the short term, when rates are controlled by the Fed, while the central bank is worried about inflation rates in a strong economy.
The Boston Fed president said it was "plausible" that the depressed 10-year Treasury rate this year is due more to the weakness of US trading partners than to the fear of the US economy.
He also noted that stocks remain robust despite the rocky summer.
"The problems of recession do not seem to be reflected in current stock prices," he said.
Markets were also responding to significant risks related to trade tensions, he said.
Rosengren did not respond to the ISM survey conducted in August by the manufacturing sector, which showed a contraction in activity for the first time in three years.
Lily: The ISM manufacturing index drops below 50, signals a contraction
The president of the Boston Fed said that he was still forecasting 2% growth over the rest of the year, but that he was watching the situation closely.
"In my opinion, one should not over-believe that the economy will be fine or that an economic slowdown is inevitable," Rosengren said.
The Boston Fed chairman hinted that he would not support a further rate cut in September unless it is clear that the economy was slowing down.
"If the data continues to indicate a US economy growing slightly above the level seen as the potential growth rate with continued gradual increases in wages and prices, then, in my opinion, no immediate political action would be needed ", did he declare.
Financial markets were volatile Tuesday with the Dow Jones Industrial Average
DJIA, -1.08%
down 285 points or 1% to 26,118.
The Fed is divided into two camps on interest rate policy. Many want to see more relaxation.
The president of the St. Louis Fed, James Bullard, told Reuters on Tuesday that he wanted a half-point rate cut at the Fed's policy meeting on Sept. 17-18.
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