By Michael S. Derby 

Ben Bernanke, the former chairman of the Federal Reserve, remains upbeat about the economy's outlook and isn't particularly alarmed by recent bond-market developments many see as hinting at trouble down the road.

"Everything we see about the near-term outlook for the economy is quite strong," Mr. Bernanke told reporters in a roundtable interview Monday with Tim Geithner, a former New York Fed chief and Obama administration Treasury secretary, and Henry Paulson, a former Goldman Sachs banker turned George W. Bush administration Treasury secretary.

Mr. Bernanke is currently a scholar at the Brookings Institution in Washington. He led the central bank from 2006 to 2014 and was succeeded by Janet Yellen, who was replaced by Jerome Powell as Fed chairman this year.

The three men met with reporters in New York to take a look back at the financial crisis at a meeting at the Council on Foreign Relations. Those troubles began over a decade ago and all three were intimately involved in leading the response to those events.

The current narrowing, called a flattening, is in large part driven by Fed rate rises and the expectation that more are coming. Meanwhile, still-low inflation and the expectation it will stay that way is one of the factors helping limit the rise in long-dated bonds.

Mr. Bernanke acknowledged that an inversion is "a good forecaster of economic downturns," but said the Fed must look at a broad array of factors to think about the future of the economy.

"There's an argument" that maybe inversions aren't the signal they once were because long-term interest rates "are unusually low," as is the market-based compensation for risk, Mr. Bernanke said. He added that bond buying by other central banks and regulatory changes are also altering bond-market levels. The yield curve "is one indicator, but you wouldn't want to religiously consider that being the only indicator," Mr. Bernanke said.

The former Fed chair has cast a cautious eye toward the yield curve before, and it turned out to be the wrong call. In 2006, he brushed off a yield curve teetering around inversion and said he wouldn't interpret it as "indicating a significant economic slowdown to come." He also said that "the bottom line for policy appears ambiguous." The economy was in recession by 2007.

Mr. Bernanke's comments were made a day before current Fed Chairman Jerome Powell began two days of testimony on the economy and monetary policy before congress. Mr. Powell told legislators Tuesday he expects to press forward with gradual rate rises. He cited the "strong performance" of the economy as the reason for the increases, although he did acknowledge there are risks to the outlook, notably on the trade front.

Mr. Powell acknowledged the Fed's interest in the yield curve but didn't offer his assessment about its message for the outlook.

Some Fed officials, like the leaders of the Atlanta and Philadelphia Fed banks, have signaled a willingness to back off on rate increases if they think monetary policy is about to cause an inversion. In an essay posted online Monday, Minneapolis Fed leader Neel Kashkari said bond-market yield levels suggest "there is little reason to raise rates much further, invert the yield curve, put the brakes on the economy and risk that it does, in fact, trigger a recession."

Write to Michael S. Derby at Michael.Derby@wsj.com

(END) Dow Jones Newswires

July 18, 2018 00:15 ET (04:15 GMT)