(Bloomberg) -- The U.S. economy isn't likely to slip into recession anytime soon, and there is no reason for the Federal Reserve to cut interest rates, former Fed Chair Janet Yellen said.
Speaking to an investor conference in Fort Worth, Texas on Thursday, Yellen said that while Fed officials had marked down their economic growth forecasts to a median of 2.1 percent for 2019, โthat's not a recession. A slowdown is something that was long expected.โ
โThey are comfortable with the current level of rates. They're prepared to move in either direction depending on how things play out,โ Yellen said. โBut my baseline is I don't see a recession, I don't think it's likely. And I expect them to stay on hold during the year.โ
Yellen said Fed officials have โbeen looking to engineer something of a slowdownโ because the labor market is โreally quite tight.โ
A closely watched segment of the yield curve inverted last week, with yields on three-month bills rising above those on 10-year Treasuries for the first time since 2007. An inverted yield curve has preceded U.S. recessions in the past.
New York Fed President John Williams, one of the U.S. central bank's top policy makers, also downplayed fears of recession risks being signaled by bond markets.
โThere's a lot of reasons to think that it has been a recession predictor for reasons in the past that kind of don't apply today,โ he said Thursday.
Read More: Fed's Williams Plays Down Recession Risk, Bullard Sees Rebound
Yellen said the inverted yield curve may be based on fear the central bank would tighten too much and bring on a recession. Fed officials โpaid attentionโ to what markets were telling them in December, and โyou've seen a downward shift in the path of interest rates that responds to that outlook.โ
There are reasons to be concerned about growth in Europe and China, Yellen said, and โif there are downside surprises there, the Fed would be quite prepared to cut. It's by no means locked in stone that interest rates will stay where they are now. But I think it would be a surprise. It's not what I expect.โ
Yellen said she's more concerned about disinflation than inflation at this point. A slowing rate has been weighing on inflation expectation, โand in a world of low interest rates, it's not a good thing to have inflation expectations slip.โ
Still, should growth pick up, the Fed would also be prepared to tighten more, Yellen said, โbut to tighten more I think it would be necessary to see some upside surprise to inflation. Inflation has simply been so tame, so controlled that I don't see any reason for the Fed to tighten.โ
To contact the reporter on this story: Michael McKee in Fort Worth, Texas at mmckee@bloomberg.net
To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull, Randall Woods
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