2018.04.1900:08:00UTC+00Fed’s Quarles Says Flattening Yield Curve Not a Recession Indicator

The recent flattening yield curve is not an indication that the nine-year-stretch of U.S. economic expansion is nearing its end, according to Federal Reserve Governor Randal Quarles.

In a speech at the Bretton Woods Conference, the Fed official said that he does not perceive the current flattening of the yield curve as a particular indication towards a pending recession.

Yields are increasing more for shorter maturities than for longer maturities, flattening the yield curve.

The yield on the two year note yield stood at 1.73 percent. Meanwhile, the 10-year bond yield now stands at 2.868 percent.

Some Fed officials believe an inversion, where short-term rates increase above long-term rates, is an important indicator of a grave downturn. However, Quarles said that it all depends on what was driving the narrowing of the yield spread.

He said that the flattening of the yield curve currently observed is more of a repercussion of expected lags in the adjustment of the longer-term rates once shorter-term rates begin to rise. He added that if this was what was driving the markets going forward, he believes it that the inversion of the yield curve is an indicator of a looming recession.