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Fed's Evans says to be nervous about the yield curve, but the US economy is solid at Reuters



© Reuters. Charles Evans, president of the Federal Reserve Bank of Chicago, constitutes a photo in Palm Beach

By Noah Sin

HONG KONG (Reuters) – US Governor Charles Evans said it was understandable for the markets to be nervous as the yield curve flattened , though he was still sure of the US growth outlook.

Many see as a bad omen for the US economy, yields on benchmark US 1

0-year government bonds fell further below three-month rates in Asia on Monday, an inversion that has previously signaled the risk of economic recession.

The yield curve inverted on Friday for the first time since mid-2007.

Evans described the inversion as "rather narrow".

"We must take into account that there has been a secular decline in long-term interest rates," Evans said in comments to Credit Suisse (SIX 🙂 Asian Investment Conference in Hong Kong days after The Fed signaled an end to its tightening and abandoned plans for further interest rate hikes in 2019. "Part of this is structurally related to lower trend growth, lower real interest rates," he said. "I believe in this environment, it is probably more natural that the yield curves are somewhat flatter than they have been historical."

On the sidelines of the conference, Evans told CNBC in an interview that he could understand why investors were more "alert, waiting and looking," added the Fed did the same. But he added that economic fundamentals were "good" and he expected growth to be around 2 percent this year.

"Your first reaction will be" wow, it's less than we had "and I think it lacks the message."

TIME FOR PAUSE

On the monetary outlook, Evans said it was a good time for that the US central bank should pause and adopt a cautious attitude, adding that he had not expected any rate hikes until the second half of next year.

Softens his tone a few months ago, said Evans, who voted on interest rate policy this year that monetary policy was not accommodating or limiting at this time.

"I see things hindering inflation a little and I want to see inflation come up. So my own way can't expect a rate hike until next year, probably the second half," Evans said.

In January, he said the Fed could raise interest rates three times in 2019 if the US economy remained reasonably strong.

Last week, the Federal Reserve left interest rates stable at a range of 2.25 percent to 2.5 percent. New forecasts showed that 11 out of 17 Fed politicians expected no price changes for the rest of the year, up from just two in December.

The unexpectedly bad signal, the financial markets had quickly priced with a drop in next year.

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