Goldman's Hatzius Doesn't See an Inverted Yield Curve in 2018

(Bloomberg) -- Despite hand-wringing on Wall Street over the prospect of an inverted yield curve next year, Goldman Sachs Chief Economist Jan Hatzius remains unfazed.

If the Federal Reserve raises interest rates by “more than what markets are pricing at the moment, and if markets basically believe that the data justify what they’re doing, then the expected level of short-term rates over the next 10 years is also going to drift somewhat higher,” he said on Bloomberg Television Thursday.

“You’ll see somewhat higher yields really across the yield curve, and not an inverted yield curve,” said Hatzius, who expects four Fed rate hikes next year.

The Goldman economist’s relative tranquility echoes Fed Chair Janet Yellen’s. In her last scheduled press conference as the central bank’s head, Yellen acknowledged Wednesday that the curve is flat and could invert, but cautioned against fears that such a move could herald a recession.

Market participants aren’t voicing concern that the yield curve is flashing a warning about a coming economic decline, she said. They see the odds of a recession as low, she said, “and I’d concur with that judgment.”

--With assistance from Alix Steel and Lisa Abramowicz

To contact the reporter on this story: Jeanna Smialek in New York at jsmialek1@bloomberg.net.

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Alister Bull, Randall Woods

©2017 Bloomberg L.P.