Federal Reserve Bank of Dallas President Robert Kaplan cautioned against policy actions that would push short-term borrowing costs above longer-term yields and said the U.S. central bank should move gradually with its plan to raise interest rates.
“I, for one, do not want to in the future knowingly create an inverted yield curve,” he told reporters Tuesday in New York after speaking at the Council on Foreign Relations. “I’m very carefully watching the shape of the curve.”
The former Goldman Sachs executive, who does not vote on policy this year, has previously warned about an inverted yield curve, which has a strong track record of predicting an upcoming recession.
Yield spreads between five- and 30-year Treasuries narrowed last week to their lowest level since August 2007. An inverted yield curve could occur in coming months if the Fed follows through on its plan to raise rates two or three more times this year.
Kaplan said that he’d make a judgment later in the year on how many rate hikes in total are warranted in 2018. His remarks follow a warning on Monday from St. Louis Fed chief James Bullard that the Fed does not need to be “so aggressive that we invert the yield curve,” because inflation is relatively low and stable.
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