Yellen: ‘Does not predict a slowdown’ in the US economy
Minneapolis (CNN) US Treasury Secretary Janet Yellen said she believes the US economy remains strong and the banking system is resilient despite some recent turmoil among regional financial institutions.
“I haven’t really seen evidence at this stage to suggest a contraction in credit, although that is a possibility,” Yellen told a news conference on Tuesday ahead of the World Bank’s spring meetings. “I think our banking system remains strong and robust; it has solid capital and liquidity.”[ads1];
She added that “the U.S. economy is obviously performing exceptionally well,” noting solid job creation, moderating inflation and robust consumer spending.
“So I don’t expect a slowdown in the economy, although of course that’s still a risk,” she said.
The global economy is still in a better place than many have expected, she said.
“[During the G20 meeting in February]I said the global economy was in a better place than many predicted last fall,” Yellen said. “The fundamental picture has largely remained unchanged.”
Her assessment of the global outlook appears to be better than the International Monetary Fund, which downgraded its forecast on Tuesday, citing volatility in financial markets.
The IMF now expects economic growth to slow from 3.4% in 2022 to 2.8% in 2023. The estimate in January had been growth of 2.9% this year.
Last month nervousness in the financial sector grew after the collapse of two US regional banks, Silicon Valley Bank and Signature Bank, and global banking giant Credit Suisse teetered on the brink of collapse before merging with rival UBS.
“Uncertainty is high and the balance of risks has shifted to the downside as long as the financial sector remains unsettled,” the organization said in its latest report.
The U.S. Treasury Department, in cooperation with the Federal Reserve and the Federal Deposit Insurance Corporation, intervened after the regional bank failures to ensure that bank customers could access all their money and try to stave off future bank runs.
Yellen said at the time that the “decisive and forceful actions” taken helped stabilize the situation and added that “the US banking system remains healthy.”
The emergence of stress in the financial markets nevertheless comes at a precarious time for central banks, according to the IMF’s Global Financial Stability Report published on Tuesday.
The turmoil “complicates the central banks’ task at a time when inflationary pressure is proving to be more persistent than expected”, according to the report. “If financial strains intensify significantly and threaten the health of the financial system under high inflation, trade-offs between inflation and financial stability may arise.”
In the US, the Fed is embarking on a year-long effort to cool the highest inflation seen in four decades.
Inflation has slowed in recent months; However, the banking crisis, along with broader global and domestic macroeconomic factors – including Russia’s ongoing war in Ukraine and the lack of an agreement on the US debt ceiling – are increasing uncertainty about future economic stability.
In January, the Treasury implemented “extraordinary measures” that allow the US government to continue paying its bills. However, these efforts are acting as a stopgap, and a default could come as early as this summer, economists and the government have estimated.
Yellen has repeatedly pushed for congressional action to address the loan ceiling.
In her comments on Tuesday, Yellen also pledged continued financial and humanitarian support to Ukraine as the country continues to defend itself against Russia’s invasion.
“If the war continues, we must continue to work with our partners to provide the support that Ukraine needs, and we are committed to doing so,” she said.
— CNN’s Julia Horowitz contributed to this report.
