“I think the Fed still has a large balance sheet, and that could be putting some downward pressure on those longer-term rates.” Kansas City Fed President Esther George says that the Fed may be partly responsible for the yield curve inversion.
"I think the Fed still has a large balance sheet, and that could be putting some downward pressure on those longer-term rates," George told CNBC'sThe yield on the benchmarkhas fallen below the 2-year yield twice since Aug. 14, causing the bond market's main yield curve to invert. The bond market phenomenon is historically a trusty signal of an eventual recession; however, George said the Fed could be influencing the long end of that equation.
"So we all know what the history is of inverted yield curves and the concern that they portend a recession coming. But in the context of a global economy that is weakening, I think that could be explaining part of it," George said. "So I'll keep watching that carefully for sure but I don't yet see the signal — that suggests it's time to get worried about a downturn.
When asked if the U.S. rates are too far above other major developed countries, George said she doesn't "think of it that way." "I tend to think that — those rates in the U.S. are reflecting the underlying economy here. The interest rates in other countries likewise are reflecting that. And to address that issue really requires other policies in those countries, whether it's fiscal or monetary to really effect — that growth," she said.
George was one of just two Fed members to dissent in the vote to cut interest rates by 25 basis points in July.said he doesn't see the case for additional stimulus after the Federal Reserve's July rate cut.
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