Janet Yellen, the Secretary of the United States Treasury, stated in Washington that in the aftermath of recent bank failures, financial institutions are expected to become more cautious and may further restrict lending, which may eliminate the need for the Federal Reserve to raise interest rates further.
According to a CNN transcript, Yellen stated in an interview that policy steps to prevent the systemic danger generated by the collapses of SVB and Signature Bank last month had led deposit outflows to stabilize, and “things have been calm.” Yellen was referring to the fact that things have been calm after the failures of SVB and Signature Bank.
US banks may reduce lending, according to Yellen.
During the course of the conversation, Yellen stated that “banks are likely to become somewhat more cautious in this environment.” Before that event, we had already seen some tightening of lending criteria in the banking system, and it’s possible that there may be some more of that in the future.
She predicted that this would result in a tightening of credit within the economy, which “could be a substitute for further interest rate hikes that the Fed needs to make” However, Yellen stated that she was not yet seeing anything in this area that was “dramatic enough or significant enough” to cause her to change her assessment for the economy. Therefore, I believe that the forecast will continue to be one of modest growth, with ongoing strength in the labor market and a decline in inflation.
In light of the fact that they anticipate financial institutions to tighten their lending standards in the coming weeks and months, a number of Fed officials have concurred that the US central bank ought to take a more cautious stance.