Referring to the recent bank failures, US Treasury Secretary Janet Yellen stated that banks are expected to become more cautious and may tighten lending even further, potentially avoiding the need for any Federal Reserve interest rate hikes.
According to a CNN transcript made available on Saturday, Yellen stated in an interview with "Fareed Zakaria GPS" that policy measures taken to counter the systemic threat brought on by Silicon Valley Bank and Signature Bank failing last month had led deposit outflows to moderate, "and things have been calm."
"Banks are likely to become somewhat more cautious in this environment," Yellen said in the interview, which is scheduled to air on Sunday. "We already saw some tightening of lending standards in the banking system prior to that episode, and there may be some more to come."
That would result in credit being restricted in the economy, which, in her words, "could be a substitute for further interest rate hikes that the Fed needs to make."
But Yellen claimed that nothing "dramatic enough or significant enough" had yet occurred in this regard to change her assessment on the economy.
"So, I think the outlook remains one for moderate growth and (a) continued strong labor market with inflation coming down," she said.
As a result of the turmoil in the financial industry over the past month, Yellen is far from the only finance official anticipating some reduction in bank credit. Some Fed officials believe the U.S. central bank should proceed with more caution because they anticipate banks to limit lending in the coming months.
Weekly bank balance sheet data released by the Fed also reveals that deposit outflows have stabilized in the previous two weeks after first surging around the time of the SVB and Signature collapses in mid-March, while bank lending has yet to materially worsen.
In light of worries about the security of deposits, Yellen was questioned if it would be prudent to create a central bank digital currency that would enable American citizens to hold accounts directly with the Fed.
"There are important pros ... and there are some cons with such a decision, so it's one that needs to be seriously analyzed, but it could be something that is in Americans' future," Yellen said.
Yellen also said on CNN that Western nations' $60 per barrel price restriction on Russian oil was causing Moscow's anticipated budget surpluses to turn into deficits and that U.S.-led sanctions and export controls on Russia were denying it supplies for its conflict in Ukraine.
Russia has been compelled to turn to Iran and North Korea for military supplies and equipment due to the sanctions and export controls, and Yellen noted that the US was taking steps to stop sanctions evasion.
"But we think his (President Vladimir Putin's) military is really short of the equipment they need to wage war," she added.
When asked if sanctions may weaken the dollar's status as the world's reserve currency, Yellen agreed there might be some dangers.
"So, there is a risk when we use financial sanctions that are linked to the role of the dollar, that over time it could undermine the hegemony of the dollar, as you said. But this is an extremely important tool we try to use judiciously," Yellen said, adding that sanctions are most effective when used with the support of allies.
Because the dollar is backed by the safest and most liquid assets in the world, US Treasuries, China, Russia, and Iran are motivated by the sanctions to find a substitute for it. However, this is "not easy" to do.
"Dollars are widely used. We have very deep capital markets and rule of law that are essential in a currency that is going to be used globally for transactions," Yellen said. "And we haven't seen any other country that has the basic infrastructure - institutional infrastructure - that would enable its currency to serve the world like this."
(Source:www.usnews.com)
According to a CNN transcript made available on Saturday, Yellen stated in an interview with "Fareed Zakaria GPS" that policy measures taken to counter the systemic threat brought on by Silicon Valley Bank and Signature Bank failing last month had led deposit outflows to moderate, "and things have been calm."
"Banks are likely to become somewhat more cautious in this environment," Yellen said in the interview, which is scheduled to air on Sunday. "We already saw some tightening of lending standards in the banking system prior to that episode, and there may be some more to come."
That would result in credit being restricted in the economy, which, in her words, "could be a substitute for further interest rate hikes that the Fed needs to make."
But Yellen claimed that nothing "dramatic enough or significant enough" had yet occurred in this regard to change her assessment on the economy.
"So, I think the outlook remains one for moderate growth and (a) continued strong labor market with inflation coming down," she said.
As a result of the turmoil in the financial industry over the past month, Yellen is far from the only finance official anticipating some reduction in bank credit. Some Fed officials believe the U.S. central bank should proceed with more caution because they anticipate banks to limit lending in the coming months.
Weekly bank balance sheet data released by the Fed also reveals that deposit outflows have stabilized in the previous two weeks after first surging around the time of the SVB and Signature collapses in mid-March, while bank lending has yet to materially worsen.
In light of worries about the security of deposits, Yellen was questioned if it would be prudent to create a central bank digital currency that would enable American citizens to hold accounts directly with the Fed.
"There are important pros ... and there are some cons with such a decision, so it's one that needs to be seriously analyzed, but it could be something that is in Americans' future," Yellen said.
Yellen also said on CNN that Western nations' $60 per barrel price restriction on Russian oil was causing Moscow's anticipated budget surpluses to turn into deficits and that U.S.-led sanctions and export controls on Russia were denying it supplies for its conflict in Ukraine.
Russia has been compelled to turn to Iran and North Korea for military supplies and equipment due to the sanctions and export controls, and Yellen noted that the US was taking steps to stop sanctions evasion.
"But we think his (President Vladimir Putin's) military is really short of the equipment they need to wage war," she added.
When asked if sanctions may weaken the dollar's status as the world's reserve currency, Yellen agreed there might be some dangers.
"So, there is a risk when we use financial sanctions that are linked to the role of the dollar, that over time it could undermine the hegemony of the dollar, as you said. But this is an extremely important tool we try to use judiciously," Yellen said, adding that sanctions are most effective when used with the support of allies.
Because the dollar is backed by the safest and most liquid assets in the world, US Treasuries, China, Russia, and Iran are motivated by the sanctions to find a substitute for it. However, this is "not easy" to do.
"Dollars are widely used. We have very deep capital markets and rule of law that are essential in a currency that is going to be used globally for transactions," Yellen said. "And we haven't seen any other country that has the basic infrastructure - institutional infrastructure - that would enable its currency to serve the world like this."
(Source:www.usnews.com)
