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John Williams says Fed won’t base decisions on changes in yield curve

Yield curve has been regarded as a harbinger for a recession

John Williams (Credit: WSJ)

New York Fed President John Williams said yesterday that the central bank should not make a decision about raising short-term interest rates based on yield curves. Instead, it should solely reflect the state of the economy.

Primer on yield curve: It’s the difference between the two-year and 10-year Treasury yields. When long-term rates are lower than short-term rates (known as “inversion”), this is widely regarded as an indicator of an economic downturn. The spread is at its narrowest level since 2007.

Worth remembering: The language used by the Federal Open Market Committee in their most recent statement suggested a rate hike later this month.

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