US Secretary of the Treasury Janet Yellen said banks are likely to become more cautious and might tighten lending further in the wake of recent bank failures, possibly negating the need for further US Federal Reserve interest rate hikes.
Yellen said in a Fareed Zakaria GPS interview that policy actions to stem the systemic threat caused by last month’s failures of Silicon Valley Bank and Signature Bank had caused deposit outflows to stabilize, “and things have been calm,” according to a CNN transcript released on Saturday.
“Banks are likely to become somewhat more cautious in this environment,” Yellen said in the interview that was scheduled to air yesterday. “We already saw some tightening of lending standards in the banking system prior to that episode, and there may be some more to come.”
Photo: Reuters
She said that would lead to a restriction in credit in the economy that “could be a substitute for further interest rate hikes that the Fed needs to make.”
However, Yellen said she was not yet seeing anything “dramatic enough or significant enough” in this area to alter her economic outlook.
“So, I think the outlook remains one for moderate growth and [a] continued strong labor market with inflation coming down,” she said.
Yellen is far from the only finance official expecting some retrenchment in bank credit as a result of the financial sector upheaval in the past month.
Some Fed officials have said the US central bank should adopt a more cautious footing as they expect banks to restrict lending in the months ahead.
Yellen was asked, in the wake of concerns about the safety of deposits, whether it would be wise to develop a central bank digital currency that would allow US consumers to have 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 told CNN that US-led sanctions and export controls on Russia were depriving it of materials for its war in Ukraine and the US$60-a-barrel price cap on Russian oil imposed by Western countries was turning Moscow’s expected budget surpluses into deficits.
The sanctions and export controls have forced Russia to resort to Iran and North Korea for military equipment and supplies, and the US was taking steps to curb sanctions evasion, Yellen said.
“But we think his [Russian President Vladimir Putin’s] military is really short of the equipment they need to wage war,” she added.
Asked whether sanctions could erode the US dollar’s role as the world’s reserve currency, Yellen acknowledged potential risks.
“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.
The sanctions create a desire on the part of China, Russia and Iran to find an alternative to the US dollar, but this is “not easy” to achieve due to its unique properties of being backed by the safest and most liquid assets in the world — US Treasuries.
“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.”
DOLLAR CHALLENGE: BRICS countries’ growing share of global GDP threatens the US dollar’s dominance, which some member states seek to displace for world trade US president-elect Donald Trump on Saturday threatened 100 percent tariffs against a bloc of nine nations if they act to undermine the US dollar. His threat was directed at countries in the so-called BRICS alliance, which consists of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates. Turkey, Azerbaijan and Malaysia have applied to become members and several other countries have expressed interest in joining. While the US dollar is by far the most-used currency in global business and has survived past challenges to its preeminence, members of the alliance and other developing nations say they are fed
TECH COMPETITION: The US restricted sales of two dozen types of manufacturing equipment and three software tools, and blacklisted 140 more Chinese entities US President Joe Biden’s administration unveiled new restrictions on China’s access to vital components for chips and artificial intelligence (AI), escalating a campaign to contain Beijing’s technological ambitions. The US Department of Commerce slapped additional curbs on the sale of high-bandwidth memory (HBM) and chipmaking gear, including that produced by US firms at foreign facilities. It also blacklisted 140 more Chinese entities that it accused of acting on Beijing’s behalf, although it did not name them in an initial statement. Full details on the new sanctions and Entity List additions were to be published later yesterday, a US official said. The US “will
COLLABORATION: The operations center shows the close partnership between Taiwan and Japan in the field of semiconductors, Minister of Economic Affairs J.W. Kuo said Tokyo Electron Ltd, Asia’s biggest semiconductor equipment supplier, yesterday launched a NT$2 billion (US$61.5 million) operations center in Tainan as it aims to expand capacity and meet growing demand. Its new Taiwan Operations Center is expected to help customers release their products faster, boost production efficiency and shorten equipment repair time in a cost-effective way, the company said. The center is about a five-minute drive from the factories of its major customers such as Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) advanced 3-nanometer and 2-nanometer fabs. The operations center would have about 1,000 employees when it is fully utilized, the company
Intel Corp chief executive officer Pat Gelsinger has retired from the company and stepped down from its board of directors just as the company is in the middle of trying to execute a turnaround plan. Intel chief financial officer David Zinsner and Intel Products CEO Michelle Johnston Holthaus are serving as interim co-CEOs while the board searches for Gelsinger’s replacement, the company said in a statement. Frank Yeary, independent chair of the board of Intel, is to serve as interim executive chair, the company said. Gelsinger’s departure is hitting at a tumultuous time for the US chipmaker. Once the industry leader in
RSS