Kansas City Fed President Esther George said the Federal Reserve may be partly responsible for the inversion of the yield curve.
"I think the Fed still has a great balance and that it could be putting some pressure down on the longer-term rates," George told CNBC's Steve Liesman of the Kansas City Fed Economic Policy Symposium in Jackson Hole, Wyoming.
The return on the benchmark portfolio for 10-year Treasury has fallen below the 2-year return twice since August 14, which causes the bond market's most important yield curve to reverse. The bond market phenomenon has historically been a reliable signal of a possible recession; However, George said the Fed could affect the long end of that equation.
The Fed voted at its political meeting in July to end the reduction in bonds the central bank has in the balance sheet, two months earlier than planned. Balance, which makes up about $ 3.8 trillion of mostly Treasury's and mortgage-backed securities, ballooned to as much as $ 4.5 trillion as the Fed tried to stimulate the economy out of the financial crisis.
"So we all know what the story is about reverse yield curves and the concern that they are causing a recession." So I will continue to monitor it closely, but I still do not see the signal ̵
With more than $ 15 trillion government bonds worldwide trading in negative returns, investors are concerned that the United States might be sucked into this global trend amid the impending economic downturn Although George is less convinced that the United States is just behind.
"I will never say never. I don't see it – for the US right now, "she said.
" Remember that we already have real interest rates at zero right now, if you think about where inflation is and where the current federal fund rate is. So politics is not tight in my view of the United States, and I think if the economy grows, I don't see the scenario for it right now, "George said.
George attributed higher prices in the United States to the strength of the economy.
" I think if you look at the underlying performance of the other economies, you will see that the United States is performing better than Europe – and other parts of the world, for example. And it stands for – why we have higher interest rates, "George said.
Asked if US interest rates are too far above other major developed countries, George said she does not" think about it that way. "
" I tend to think that – these prices in the US reflect the underlying economy here. Interest rates in other countries also reflect that. And to address this issue really requires different policies in these countries, whether fiscal or monetary, to really have the impact – that growth, "George said.
George was one of only two Fed members who disliked voting for to cut interest rates by 25 basis points in July, she told CNBC on Thursday that the interest rate cut "was not required in my view. "
Bond rates were ticked off after George's comments.