Many specialists believe, the recent trends in bond markets could cause unwished troubles. However, Bernanke has a completely different opinion.
Background information: Ben Bernanke is known as a former chairman of quite a serious institution, the Federal Reserve. Even though he isn’t its head now, he still has the best economy outlook.
So, Ben Bernanke is not excessively worried about the most recent developments in the bond market, even though many specialists believe, those trends can cause serious problems.
As he told the reporters during its interview with the former New York Fed Chief Tim Geithner and the former banker from Goldman Sachs, Henry Paulson, “Everything we see about the near-term outlook for the economy is quite strong.”
Now, Ben Bernanke is busy with other, more academic things. He is a scholar at the Brookings Institution, located in Washington. He claims, he is researching there the causes of the financial crisis that hit the Fed while he was its chairman.
After his time in the position of a chairman was over, in his place came Janet Yellen, who was succeeded by Jerome Powell. The three financial genius met in New York to have a look back at the financial crisis that had happened in the past. They all were involved in it, and they all had to lead the response to the events of that time, to the event that had happened over a decade before the meeting took place.
Now, the Fed rate grows, and it is expected, that more growth will follow. However, the inflation levels are low, and they aren’t expected to grow much. This is one of the main causes why the long-dated bonds growth should be limited.
Ben Bernanke agreed, that these indicators usually show, that serious economic downturns are coming, but he said as well, that Fed should not be limited to considering these factors only. If the future of the country`s economy is to be determined, a wide range of factors should be considered.
He believes, that the long-term interests are very low, that’s why, inversions cannot be regarded as a reliable signal, if they can be regarded as a signal at all, under the given circumstances. As well, he added, that central banks are buying bonds, and this factor, as well as changes in the regulation, influence on the bond-market and the levels of changes in it.
So, Mr. Bernanke believes, that the yield curve is definitely a factor, but just one factor of many similar ones. He also refers to his past experience, when, in 2006, he paid too much attention to the yield curve and inversion, and he told, that a significant economic slowdown is expected. He took into consideration not only the yield curve, but other factors, as well, and his forecast was correct: the economy of the country was in recession from 2006 till 2007.
Two days after Mr. Bernanke expressed his ideas, the Fed chairman Jerome Power held a speech before the congress. He was telling about the monetary policy and economy. As well, he shared with the congressmen his expectation regarding the pressing forward with rate rises. Those rises should have been implemented gradually, following particular instructions. He claimed that the reason for the increase is a strong performance of the country`s economy, however, he indicated as well, that there are risks.
Mr. Powell noted, that Fed is interested in the yield curve interpretation, but he did not offer any forecasts or assessments.
The leaders of some banks, like the Atlanta and Philadelphia Fed banks, supported Mr. Powell and agreed to back off on rate increases. However, the bank leaders stated clearly, that they are going to do it if they believe that the monetary policy of Fed is going to cause the inversion.
Neel Kashkari, the Minneapolis Fed leader, insisted, that there are not so many really significant reasons to raise rates and invert the yield curve. With these measures, he believes, they slow down the country`s economy and cause a risk of recession.