BERKELEY, Calif., Nov 21 (Reuters) - U.S. long-term interest rates will rise when the Federal Reserve starts raising its short-term policy rate, and the yield curve will also steepen once the Fed starts trimming its balance sheet, a top Fed official said on Saturday.
Currently, the Fed’s near-zero interest rate policy, along with its massive balance sheet, are pushing down on long-term rates and reducing the gap between short-term and long-term rates, John Williams said at a conference at University of California Berkeley’s Clausen Center.
The Fed’s big balance sheet is currently keeping 10-year bond yields about a percentage point lower than they otherwise would be, Williams said.
“Some of the flatness (in the yield curve) we see today... eventually that will move back up,” Wiliams said. (Reporting by Ann Saphir; Editing by Alan Crosby and Sandra Maler)