Janet Yellen touts U.S. economy's resiliency despite inflation, volatility

The Treasury Department is carefully monitoring financial risks to the U.S. economy, such as global volatility and high inflation, but overall, the U.S. financial system remains resilient, Treasury Secretary Janet L. Yellen said Monday.

"We're being very careful (and) understand that risks could emerge, but for now, I think the U.S. economy is healthy and I don't see financial stability risks that are concerning to me," Ms. Yellen said at the Securities Industry and Financial Markets Association's annual meeting in New York during a question-and-answer session moderated by Kenneth E. Bentsen Jr., the group's president and CEO.

But in her prepared remarks that preceded the question-and-answer session, Ms. Yellen said "inflation in the United States remains far too high" and the Biden administration's top economic priority is to rein it in.

"It's important to recognize that we now face serious global headwinds and challenges with elevated inflation," she said. "Growth is slowing globally. And energy and food prices have risen, driven partly by (Russian President Vladimir) Putin's terrible war in Ukraine and the pandemic's lingering effects abroad. Climate change continues to devastate communities, exacerbating energy and food shortages in Europe and across the world. Our economy remains resilient, bolstered by President Biden's economic plan, but we are highly attuned to these risks."

The Treasury market is currently reflecting greater uncertainty about the economic outlook, but trading volumes are robust and investors are able to execute transactions, Ms. Yellen said.

"However, in the past few years, we have seen some episodes of stress in this critical market," she added. "These episodes underscore the importance of enhancing its resilience. Treasury is working with financial regulators to advance reforms that improve the Treasury market's ability to absorb shocks and disruptions, rather than to amplify them."

Of note, she said financial regulators are "working together to better monitor leverage in private funds and develop policies to reduce the first-mover advantage that could lead to investor runs in money market funds and open-end bond funds."

Despite the global economic headwinds, the U.S. financial markets are operating effectively, Ms. Yellen said.

While there has been "some decline in liquidity, in the sense that it's a bit more expensive to transact," Ms. Yellen said that markets are still "well-functioning, trading volumes are large, traders are not having difficulty executing trades and so while you do see some sign of higher costs and a little bit less liquidity, we do not have a problem. At this point they continue to function well."