February 14, 2007 / 4:52 PM / 13 years ago

Bernanke says inverted yield curve not economic threat

WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke said the prolonged inversion of the U.S. Treasury debt yield curve does not signal a slowing economy, but it could pressure profits at smaller banks.

“There’s been a good bit of evidence that the declines in the term premium and perhaps a great deal of saving chasing a limited number of investment opportunities around the world have led to a somewhat permanent flattening or even inversion of the yield curve, and that pattern does not necessarily predict a slowing in the economy or recession,” Bernanke said on Wednesday in testimony to the Senate Banking Committee.

He said he did not see the inversion as putting “tremendous pressure” on the banking sector, as many banks were able to use hedges and other financial instruments to deal with the problem of higher short-term deposit rates and lower long-term loan rates. Smaller banks may have more difficulty with this, he said.

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