The Fed believes that the yield curve is not an "oracle" for a recession

New York Federal Reserve Chairman John Williams said Thursday that rising short-term bond yields above their long-term counterparts was only one factor to consider. to determine the future situation of the economy.

The inverted rate curve is not "an oracle," he said at a Q & A with Steve Liesman of CNBC.

Previous occurrences were reliable indicators of the recession, particularly when the three-month Treasury yield exceeded the 10-year benchmark.

"I do not go there like an oracle: tell me the answer, will there be a recession?" Williams said following a speech in New York before the Council on Foreign Relations. "I think it's like other market indicators.That tells us that there's a heightened concern about the risks on the outlook."

His comments are part of intense market speculation on the trajectory of interest rates. Futures prices, as measured by the WEC FedWatch Index, indicate at least two and perhaps three rate declines this year from July.

Williams, however, has sidestepped the direction of rate direction, as Fed officials almost always do, merely saying that his economic outlook is good, but he acknowledges the challenges ahead. In particular, the markets are concerned about the US trade war with China and another imminent front in Mexico.

Expectations that the Fed will keep rates low in a slow growth environment have resulted in lower government bond yields at multi-year lows.

"At the beginning of the second quarter, the economy knew, I think, a very strong trajectory both of GDP and of employment and unemployment.When I look at the first half of the year, I predict a growth rate well above the growth trend, "Williams said. "At the same time, in the future, monetary policy must always ask where will the economy go in the next two years?"

An indicator from Williams' New York Fed, which tracks the bond yield spread and uses it as the basis for calculating the recession, indicates a 30% probability of negative growth over the next 12 months, the highest since the Great Recession. Williams said he thought this reading reflected growing concerns about a slowdown.