Feds Evans says they must be nervous about the yield curve, but the US economy is solid


© Reuters. Charles Evans, President of the Central Bank of Chicago, is representing a photo in Palm Beach

With Noah's Son

Chancellor of the Chicago Federal Reserve Bank, Charles Evans, said on Monday that it is understandable that markets are nervous when the yield curve decreases, although he is still convinced about forecasts of US economic growth.

In what many see as a bad sign for the US economy, yields on ten-year US Treasury bills in the US have dropped further below the three-month levels in Asia, which in the past has shown the risk of an economic downturn.

On Friday, the profit curve reversed for the first time since mid-2007.

Evans described the inversion as "quite narrow".

"We have to bear in mind that there has been a secular decline in long-term interest rates," said Evans in comments on Credit Suisse (SIX) Asian Investment Conference in Hong Kong, days after the Fed announced the end of tightening and abandoned plans for a further increase in interest rates in 2019 ..

"Part of this is of a structural nature, which is associated with a lower trend growth, lower real interest rates," he said. "I think that in this environment, it's probably more natural that the yield curves are somewhat more lively than in the past."

In the margins of the conference, Evans said in an interview with CNBC that he could understand why investors are more "alert, waiting and looking," and adds that the Fed is doing it. However, he added that the economic basis is "good" and expects this year to grow about 2 percent.

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


Regarding the monetary policy forecast, Evans said that it is a good time for the US central bank to stop and take a cautious stance, adding that it does not expect an increase in interest rates until the second half of next year.

Evans, who is voting on the interest rate policy this year, eased his tone a few months ago and said that monetary policy is neither flexible nor restrictive at this point.

"I see things that hinder inflation, and I want inflation to rise, so my own way is not expected to increase the level of funds by the next year, probably in the second half," said Evans.

In January, the Fed could raise the interest rates three times in 2019 on the assumption that the US economy remained strong.

Last week, the US central bank insisted at rates of 2.25 to 2.5 percent. New forecasts showed that 11 out of 17 US central bank politicians expected that the rate will not change until the end of the year, compared to two December.

This unexpectedly complete signal rapidly shaped the prices of financial markets in the next decade.

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