Imminent yield curve inversion 'real possibility': Fed's Bullard

(Reuters) - The Federal Reserve should hold off on any more increases in interest rates to avoid the risk of the yield curve inverting, St. Louis Fed President James Bullard said on Friday.

"Imminent yield curve inversion in the U.S. has become a real possibility," Bullard said in prepared remarks to a local chamber of commerce in Glasgow, Kentucky. "Yield curve inversion is a naturally bearish signal for the economy. This deserves market and policymaker attention."

Bullard has repeatedly said he believes the U.S. central bank should hold the federal funds rate at its current level of a target range of 1.75 percent to 2 percent to help avoid such a scenario.

An inversion of the yield curve - the spread between short-term and long-term debt securities - is seen by some as a signal of a possible economic recession.

Bullard said that should longer-term yields remain near current levels and the Fed proceeds with its forecast of another two interest rates rises this year, the nominal yield curve would invert in late 2018.

"Given tame U.S. inflation expectations, it is unnecessary to push monetary policy normalization to such an extent that the yield curve inverts," he added.

Bullard does not have a vote on monetary policy this year under a rotation system, but participates in deliberations.

(Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama)

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