Despite Bullard’s optimism, many analysts believe that a growing fiscal deficit, trade wars and rising interest rates could put an end to the economic expansion seen in the U.S. Some also believe that the current yield curve in the bond market is real evidence that a recession is under way. The yield curve — a line that plots short and long-term interest rates — has flattened over the last month. Analysts at UBS Asset Management have even predicted that the curve will invert next year. This is generally interpreted as a sign that economic turmoil is just around the corner.
Bullard told CNBC Monday that he is indeed “worried” about the pace of future rate hikes. “I have been worried that we don’t overdo normalization,” he said.
The U.S. Federal Reserve has been lifting rates in an attempt to normalize monetary policy. However, if the Fed announces several rates hikes in a short period of time, that could affect this curve and potentially support an inversion.
“I think the yield curve issue is one that is sending a signal to us about, well, maybe the whole structure of rates is just lower today, maybe we should just react to data and not plan to try to get rates up to such a high level that they match what we’ve seen in the 2000s or the 1990s.”