The Federal Reserve’s James Bullard has warned that interest hikes risk a recession as soon as next year. Two more are planned for this year.
In particular, Bullard mentioned that investors are carefully tracking the yield curve to check whether a potential recession is getting closer. The yield curve — a line that plots the difference between short and long-term interest rates in the U.S. — has been flattening, but many analysts are worried that it will invert as soon as next year. An inversion of the curve often signals an economic recession and is thus interpreted as a sign that economic turmoil is around the corner.
“I think the state of affairs is good for today. The question is how to play things going forward over the next two years. If the Fed raises rates 50 basis points and the 10-year (Treasury bond) does not cooperate, you could see an inverted yield curve in the U.S.,” Bullard told CBNC’s “Squawk Box Europe.”