Banks’ Pullback on Lending Could Do Some of Fed’s Work

Treasury Secretary Janet Yellen said U.S. lenders may pull back on credit in the wake of recent bank failures—enough to do some of the Federal Reserve’s work for it, but not enough to significantly change her economic outlook.

“Banks are likely to become somewhat more cautious in this environment,” Yellen said in an interview on CNN’s Fareed Zakaria GPS scheduled to air on Sunday. “That does tend to lead to somewhat greater restriction in credit that could be a substitute for further interest-rate hikes that the Fed needs to make.”

She remains optimistic that the U.S. can avoid a recession and a meaningful jump in unemployment as the economy cools and inflation slows. “I’m not seeing anything at this time that is dramatic enough or significant enough, in my view, to significantly change the outlook,” she said, according to a CNN transcript. “The outlook remains one for moderate growth and a continued strong labor market with inflation coming down.”

Her comments were more nuanced than remarks she made April 11, when she said she saw no evidence of a credit contraction in the United States, even after the Fed released data just days prior showing bank lending had significantly dropped during the last two weeks in March.

Yellen was asked whether the U.S. would support calls to use frozen Russian assets to help with the reconstruction of Ukraine. The country’s president, Volodymyr Zelenskiy, spoke this week via videoconference to a gathering of global finance leaders in Washington and urged them to seize Russian assets.

The Treasury chief agreed that Russia should be forced to contribute but stopped short of endorsing a seizure of assets. “Russia should pay for the damage that it has done to Ukraine,” she said. “But, you know, there are legal constraints on what we can do with frozen Russian assets, and we’re discussing with our partners what might lie in the future.”