US Treasury Secretary Janet Yellen said US banks are likely to become more cautious and tighten credit further after the recent bank failures, possibly staving off the need for further interest rate hikes. by the Federal Reserve (Fed, US central bank).
Yellen commented in an interview on CNN’s “Fareed Zakaria GPS” that policy actions to contain the systemic threat posed by the Silicon Valley Bank and Signature Bank failures last month had caused deposit outflows to stabilize, “and things have been calm,” according to the transcript of the conversation, released by the broadcaster on Saturday.
“Banks are likely to become a little more cautious in this environment,” Yellen said in the interview that will air on Sunday. “We’ve already seen some tightening of lending standards in the banking system before this episode, and there may be some more to come.”
She pointed out that this would lead to a tightening of credit in the economy that “could be a substitute for more interest rate hikes that the Fed needs to do.”
However, Yellen said she still isn’t seeing anything “dramatic or significant enough” in this area to alter her economic outlook.
“So I think the outlook remains one of moderate growth and a continued strong job market, with inflation coming down,” she said.
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Yellen is far from the only finance official expecting some pullback in bank lending as a result of the unrest in the financial sector last month. Some Fed members have said the US central bank should take a more cautious stance as they believe banks will tighten lending in the coming months.
Weekly reports published by the Fed with bank balance sheets have yet to show a significant deterioration in bank credit, while pointing out that deposit outflows have stabilized in the last two weeks, after an initial flood of withdrawals at the time of the bank crash. SVB and Signature in mid-March.
In the face of deposit security concerns, Yellen was asked whether it would be prudent to develop a central bank digital currency that would allow US consumers to open accounts directly with the Fed.
“There are important pros… and there are some downsides with this decision, so it’s something that needs to be seriously looked into, but it could be something that’s in the future for Americans,” Yellen mused.