Fed's Bullard says only a 'sustained' bond inversion would be a bearish signal


The inversion of portions of the Treasury bond yielded "this week" to be taken as a "bearish" signal for a U.S. economy that continues to grow, St. Louis Federal Reserve President James Bullard said on Thursday.

With economies slowing overseas "you have this flight to safety going on," that is pushing down U.S. rates even though U.S. economic growth is "reasonable," Bullard said in comments on Fox Business Network that looked to the current market.

Investors will be closely listening to Fed officials in coming weeks for insight into this week's sharp drop in stock prices and bond yields will lead to central banks to lower interest rates

"Any inversion that is going to send a bearish signal for the U.S. economy would have to be sustained over a period of time," Bullard said.

James Bullard

Olivia Michael | CNBC

A speech by Fed chair Jerome Powell next week in Wyoming, announced by the Fed on Thursday afternoon, could carry particular weight coming after a volatile period for global markets and signs

The Fed cut rates in July but gave a clear signal about when it may do so again.

Equity markets steadied on Thursday after dropping about 3%. The interest rate on the U.S. 30-year Treasury bond fell below 2% to a record low.

Bullard, who has supported a cut rate and has put weight on signals given by the bond market, said he 17-18 meeting.

He noted that he was not particularly influenced by what happened in the markets this week and considered the drop in equity prices as "a little bit overdone."

He said, "It is no surprise that stock markets fell and inverted bonds." When short-term bonds command higher interest rates, it can be read as a warning about upcoming economic growth.

But "the numbers here seem pretty good … 2 percent growth. Nice job market. Low inflation. Good consumption growth," Bullard said. "We are in the middle of a global slowdown and we are just going to have to assess how this is going to affect the U.S. economy."



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