U.S. Treasury Secretary Janet Yellen speaks during a news conference at the Treasury Department in Washington, U.S., April 11, 2023.
Elizabeth Frantz | Reuters
United States Secretary of the Treasury Janet Yellen said banks are likely to become more cautious and possibly tighten lending further following recent banking failures, which could negate the Federal Reserve’s need to raise interest rates.
Yellen said in a CNN “Fareed Zakaria GPS” interview that policy actions to stem the systemic threat posed by the failure of Silicon Valley Bank and Signature Bank last month had sending outflows stabilized, “and things settled down,” according to a note released on Saturday.
“Banks may become more cautious in this environment,” Yellen said in the interview, which is scheduled to air on Sunday. “We’ve seen some tightening of lending standards in the banking system before that period and there may be some more to come.”
She said that would lead to limited credit in the economy “which could be a substitute for the next rate hikes the Fed needs to make.”
But Yellen said she hasn’t seen anything “dramatic enough or significant enough” in the sector to change her economic outlook.
“So I think the outlook remains moderate to growth and (a) the labor market continues to be strong with inflation falling,” she said.
Yellen is not the only finance official to expect some cuts in bank credit due to financial sector volatility last month. Some Fed officials have said that the US central bank should take a more cautious step as they expect banks to limit lending in the coming months.
The weekly bank balance sheet data released by the Fed has yet to show a serious decline in banks’ lending activity, and suggests that inflows have stabilized over the past two weeks following the downturn. initial withdrawal around the time of the SVB and Signature crash in the middle of the year. -Steps are.
Given concerns about the safety of deposits, Yellen was asked whether to develop a central bank digital currency that would allow US consumers to have a direct account with the Fed.
“There are important advantages… and there are some downsides to such a decision, so it’s something that needs serious analysis, but it could be something in the future of Americans. ,” Yellen said.
Dominant Dollar
Yellen also told CNN that US-led sanctions and export controls on Russia are depriving countries of the raw materials for the war in Ukraine and the $60 per barrel price ceiling on Russian oil imposed by other countries. Western imposition is turning Moscow’s projected budget surplus into a deficit.
Yellen said sanctions and export controls have forced Russia to look to Iran and North Korea for military equipment and supplies, and that the US is taking steps to limit sanctions evasion.
“But we think that his (President Vladimir Putin’s) army really lacks the equipment needed to wage war,” she added.
When asked if sanctions could erode the dollar’s role as the world’s reserve currency, Yellen acknowledged the potential risks.
“So there’s a risk when we use financial sanctions regarding the role of the dollar, that over time it could weaken the dollar’s hegemony, as you said. But this is a hugely important tool that we try to use with caution,” Yellen said, adding that sanctions are most effective when used with the help of other agencies. ally.
Sanctions create a desire on the part of China, Russia and Iran to find an alternative to the dollar, but this is “not easy” to achieve due to its unique character of being backed. backed by the safest and most liquid assets in the world – US Treasuries.
“The dollar is widely used. We have very deep capital markets and the necessary regulation for a currency that will be used globally for transactions,” Yellen said. “And we haven’t seen any other country with the underlying infrastructure – the institutional infrastructure – that can allow its currency to serve the world like this.”
