Robert Kaplan Says Steeper Yield Curve a Sign Fed Rates Now Appropriate

(Bloomberg) — Federal Reserve Bank of Dallas President Robert Kaplan is taking comfort from the recent steepening in the yield curve and sees it as a sign that the U.S. central bank now has policy in the right place.

“I feel better with a more normally shaped yield curve,” Kaplan told Bloomberg News on Tuesday after speaking at an event in Dallas. Kaplan had voiced concern in the past that having the Fed’s benchmark policy rate above the entire Treasury yield curve was a warning that it had set rates too high.

“So now that we’ve got a 10-year in the 180s and a 2-year in the 160s — much more in line with the fed funds rate — I think it again reinforces to me that we’ve probably got an appropriate setting of the Fed funds rate now,” he said.

The 10-year note, currently yielding 1.86%, has widened its spread above the two-year note to around 23 basis points compared to around 10 basis points earlier this month. An inverted yield curve, when short-term yields are above longer-term ones, has historically been an early warning of recessions in the U.S.

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