Yellen says U.S. banks may tighten lending and negate need for more Fed rate hikes

Janet Yellen said banks would be more cautious and may make the lending rules more strict because of the recent bank failures, removing the necessity for federal reserve interest rate hikes.

Yellen said in the “Fareed Zakaria GPS” interview that the policy leads to stemming the systemic threat caused by the failure of last month.

“Banks are likely to become somewhat more cautious in this environment,” Yellen said.

“We already saw some tightening of lending standards in the banking system prior to that episode, and there may be some more to come.”

“So, I think the outlook remains one for moderate growth and continued strong labor market with inflation coming down,” she said.

Other finance officials share Yellen’s expectation that the recent financial sector disruption will lead to a contraction in bank credit. 

Some Fed officials believe that caution should be exercised as they anticipate that lending will be curtailed in the coming months.

Although weekly bank balance sheet data has not yet reflected a significant decline in lending, deposit outflows have stabilized after a surge of withdrawals around the time of the SVB and Signature collapses in March.

Yellen was recently asked about the possibility of developing a central bank digital currency that would allow Americans to have accounts directly with the Fed.

- Published By Team Nation Press News