Global economy is in 'a better place' than many expected, Yellen says
US Treasury Secretary Janet Yellen said she believes the American economy remains strong and its banking system is resilient despite some recent turmoil among regional financial institutions.
“I’ve not really seen evidence at this stage suggesting a contraction in credit, although that is a possibility,” Yellen said at a press conference Tuesday ahead of the spring World Bank meetings. “I believe our banking system remains strong and resilient; it has solid capital and liquidity.”
She added that the “US economy is obviously performing exceptionally well,” noting solid job creation, moderating inflation and robust consumer spending.
“So I’m not anticipating a downturn in the economy, although of course that remains a risk,” she said.
The global economy remains in a better place than many have expected, she said.
“[During the G20 meeting in February], I said that the global economy was in a better place than many predicted last fall,” Yellen said. “That basic picture has remained largely unchanged.”
Her assessment of the global outlook appears to be rosier than that of the International Monetary Fund, which downgraded its forecast on Tuesday, citing financial market volatility.
The IMF now expects economic growth to slow from 3.4% in 2022 to 2.8% in 2023. Its estimate in January had been for 2.9% growth this year.
Last month, jitters grew in the financial sector after the collapse of two US regional banks, Silicon Valley Bank and Signature Bank, and global banking giant Credit Suisse teetered on the brink of collapse before merging with rival UBS.
“Uncertainty is high, and the balance of risks has shifted firmly to the downside so long as the financial sector remains unsettled,” the organization said in its latest report.
The US Treasury, in conjunction with the Federal Reserve and the Federal Deposit Insurance Corporation, intervened after the regional bank failures to ensure bank customers could access all their money and to attempt to stave off future bank runs.
Yellen at the time said the “decisive and forceful actions” taken helped stabilize the situation and added that the “US banking system remains sound.”
Still, the emergence of stress in financial markets comes at a precarious time for central banks, according to the IMF’s Global Financial Stability Report released Tuesday.
The turmoil “complicates the task of central banks at a time when inflationary pressures are proving to be more persistent than anticipated,” according to the report. “If financial strains intensify significantly and threaten the health of the financial system amid high inflation, trade-offs between inflation and financial stability objectives may emerge.”
In the United States, the Fed is in the throes of a yearlong effort to cool down the highest inflation seen in four decades.
Inflation has moderated in recent months; however, the banking turmoil, along with broader global and domestic macroeconomic factors — including Russia’s ongoing war in Ukraine and the lack of an agreement on the US debt limit — heighten uncertainty about future economic stability.
In January, Treasury undertook “extraordinary measures” that allow the US government to continue paying its bills. However, those efforts serve as a stopgap, and a default could come as early as this summer, economists and the government has estimated.
Yellen has repeatedly pressed for congressional action to address the borrowing cap.
In her comments Tuesday, Yellen also pledged continued economic and humanitarian support for Ukraine as it continues to defend itself against Russia’s invasion.
“If the war continues, we’ll have to continue to work with our partners to provide the support that Ukraine needs, and we’re committed to doing that,” she said.
—CNN’s Julia Horowitz contributed to this report.