U.S. Treasury Secretary Janet Yellen was optimistic about the ability of banks, businesses and households to cope with rising interest rates, saying soaring borrowing costs were not causing dysfunction in U.S. financial markets.
At the start of this week’s annual meetings of the International Monetary Fund and World Bank in Marrakech, Yellen dismissed concerns about a collapse in the $25 trillion U.S. government bond market that has pushed the 10-year yield to levels since 2007 and weighing on borrowing costs for other countries.
“I don’t see any evidence of dysfunction associated with rising interest rates,” she told the Financial Times. “When rates are more volatile, sometimes you see some impact on market functioning, but that’s pretty standard.”
She added that she was not aware of “anything particularly unusual”.
The sell-off intensified on Friday following the release of the latest jobs report, which showed monthly job growth was significantly stronger than expected. More than 330,000 jobs were added in September, about twice as many as economists expected, raising concerns that the world’s largest economy has retained too much momentum to adequately curb inflation.
Yellen described the jobs report as “impressive.” She added that the growth was “positive, not negative” and reflected “more people wanting to work and finding jobs”.
Although hiring surged in September after months of slowdown, wage growth continues to slow and the labor force participation rate – the number of Americans employed or looking for work – has held steady near pre-pandemic levels.
“Overall, this is consistent with not seeing more tightening in the labor market,” she said, noting that core inflation, which strips out volatile food and energy prices, “has performed very well.”
“If we see the labor market overheating, there could be problems, but I don’t really see evidence of that,” Yellen added.
The Fed said the labor market needs to soften to reduce price pressures. But it insists that a painful recession can be avoided, despite recommitting at its last policy meeting in September that interest rates need to be kept high for an extended period.
Officials are debating whether to raise policy rates again this year or keep them on hold for much of 2024. The federal funds rate hit a 22-year high of 5.25-5.5%, following one of the central bank’s most aggressive rate hikes yet. Borrowing costs over decades.
In a speech on Monday, Philip Jefferson, the Fed’s No. 2 official, stressed the need for the central bank to “proceed with caution” in its upcoming interest rate decision and stressed that he would factor rising Treasury yields into whether he would Tightening of monetary policy is under review. Policies are necessary.
Dallas Fed President Lorie Logan even said in a separate comment that recent changes in financial conditions could offset the need for further action by the central bank.
Yellen dismissed concerns that banks could repeat the turmoil that followed a sharp rise in borrowing costs earlier this year.
Weaker banks have taken steps to address their vulnerabilities, she said. That includes cutting back on uninsured deposits, leaving lenders vulnerable to runs if customers get spooked. In addition, she said the overall credit quality is “very stable.”
“The rate hike itself is not obviously going to put huge pressure on households or businesses,” she said.
At the annual meeting, the finance minister is expected to focus on efforts to strengthen the financial strength of the World Bank and the International Monetary Fund. The United States wants to step up support for emerging and developing economies, address climate change more directly and counter China’s growing international influence.
Efforts to unite countries to inject more capital into these multilateral institutions will not address the underrepresentation of countries such as China and emerging economies, whose voting power is lower than their economic status would suggest. But Yellen acknowledged that this is a debate for the future.
“We think the formula needs to be reconsidered,” she said of the International Monetary Fund’s quota system, in which the United States is the largest shareholder and China, despite being the world’s second-largest economy, still has the largest economy after Japan. the third largest economy.
In addition to the relative size of their respective economies, Yellen said: “It is also important that China adheres to the agency’s norms on issues such as debt restructuring cooperation and foreign exchange transparency.” Beijing has been criticized for delaying a resolution on the thorny debt, For example, China is Sri Lanka’s largest official creditor’s debt solution.
The Treasury secretary will also face pressure this week on U.S. support for Ukraine after Congress canceled aid last month to avert a government shutdown. The funding is currently up in the air amid political dysfunction in Washington after Kevin McCarthy was ousted as House speaker.
Yellen said the Biden administration is “fully committed to providing this funding to Ukraine,” adding that officials “firmly believe that a majority of Democrats and Republicans support this.”
Svlook
