A flattening of the yield curve has preceded financial crises in the past, including the dotcom bust and the financial crisis of 2008. However, some market experts believe that this is no longer the best way to assess risk of a recession. Saker Nusseibeh, chief executive at Hermes Investment Management, told CNBC’s “Squawk Box Europe” that he expects a reversal of the recent move.
“We should expect a steepening of the yield curve. We do not see any indications of the U.S. economy entering anything like a possible recession,” he said.
A steepening of the yield curve traditionally means that market players expect higher inflation and thus higher interest rates from the U.S. central bank. It also indicates an expectation of a stronger economy.
“What we do see is clear indication of a stronger-than-anticipated U.S. economy … And possibly a sharper steepening than people thought might happen,” Nusseibeh added.
In late March, revised data showed a growth rate of 2.9 percent in the last quarter of 2017 for the U.S. The U.S. unemployment rate is currently at a 17-year low.
Federal Reserve Chairman Jerome Powell said in February that the bank would prevent the economy from overheating by raising rates at a gradual pace. Markets are expecting at least three rate hikes in 2018, with the next one taking place at the June meeting.