Washington According to Treasury Secretary Janet Yellen, the US Federal Reserve could possibly avoid further interest rate hikes in the fight against high inflation. Yellen said banks were “likely to become a little more cautious” about lending amid the recent turmoil in the industry, according to an interview transcript on the Fareed Zakaria GPS podcast distributed by CNN on Saturday. This would lead to reduced lending to the economy, which in turn could act as a “substitute” for further interest rate hikes in the US.
The question of how far the central banks in the USA or Europe will raise interest rates in order to counteract the high inflation rates is hotly debated on the financial markets. The Fed has already raised interest rates from almost zero to currently 4.75 to 5.00 percent within a year. Financial market experts are assuming that a further hike of 0.25 percentage points will be decided at the Fed meeting in May.
Yellen said policy action to contain the systemic threat to financial markets caused by the collapses of US lenders Silicon Valley Bank and Signature Bank in March has stabilized deposit outflows. The situation has calmed down, but still needs to be monitored. “Banks are likely to become a bit more cautious in this environment,” said Yellen, who herself was Federal Reserve Chair for a number of years. “We were already seeing some tightening of lending standards in the banking system prior to this episode, and that may increase.”
Yellen also stated that there had been no recent developments that were dramatic or significant enough to make her change the economic outlook. “So I think the prospects for moderate growth and a continued strong labor market with inflation falling remain in place.”
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