Banks are likely to slow down in lending in light of the fallout from the recent banking crisis and do part of the federal government’s work in cooling inflation, Treasury Secretary Janet Yellen said Sunday.
“Banks are likely to become somewhat more cautious in this environment,” Yellen said in an interview on CNN’s “Fareed Zakaria GPS” program aired on Sunday morning. “That does tend to lead to somewhat greater restriction in credit that could be a substitute for further interest-rate hikes that the Fed needs to make.”
The stunning collapse of Silicon Valley Bank and Signature Bank in March has triggered fears of another banking meltdown of the scale of the 2008 crash. The Treasury Department, working with the Federal Reserve and the Federal Deposit Insurance Corporation, intervened after the regional bank failures and promised that “no losses associated with the resolution will be borne by the taxpayer.”
The actions taken by the agencies “stemmed the systemic threat that existed,” Yellen said.
“We took steps to make sure that depositors feel that their savings are safe, and the tools that we used to do that are ones that we could and would use again if difficulties in a single bank or a couple of banks were to create a risk of contagion to the system,” she told Zakaria.
When asked about the “trade-off” between inflation and unemployment, Yellen said it’s possible to achieve a “soft landing” by slowing down the economy just enough to keep inflation in check but not so much that many Americans lose their jobs.
“I do think there’s a path to bring down inflation while maintaining what I think all of us would regard as a strong labor market,” Yellen said. “And the evidence that I’m seeing suggests we are on that path.”
“Are there risks? Of course. I don’t want to downplay the risks here, but I do think that’s possible,” she added.
The Treasury chief then moved on to blame the ongoing Russia-Ukraine conflict for raising food and energy prices, and the COVID-19 pandemic for causing supply chain disruptions in key sectors such as the auto industry.
“We’re seeing those supply chain bottlenecks that boosted inflation, they’re beginning to resolve,” she said. “We had big shifts in the way people live and low interest rates, and housing prices rose a lot. Now, housing prices have essentially settled down.”
Yellen also agreed that Russia should be forced to pay for the reconstruction of Ukraine, but didn’t say whether she supports seizing Russian assets for that purpose.
“Russia should pay for the damage that it has done to Ukraine,” she said. “But, you know, there are legal constraints on what we can do with frozen Russian assets, and we’re discussing with our partners what might lie in the future.”
