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The surge in borrowing costs has not created dysfunction in US financial markets, according to US Treasury Secretary Janet Yellen. Speaking at the IMF and World Bank annual meetings, Yellen expressed confidence in the ability of banks, businesses, and households to withstand higher interest rates. She dismissed concerns about the $25tn market for US government bonds, stating that she had not seen any evidence of market dysfunction caused by the increase in rates.
Yellen’s comments come as borrowing costs in the US have risen, with the yield on the 10-year Treasury note reaching its highest level since 2007. This has raised concerns about increased borrowing costs in other countries as well. However, Yellen stated that volatility in rates can sometimes impact market function, but it is not a cause for alarm.
The recent sell-off in bonds gained momentum after a strong jobs report, which showed higher monthly payroll gains than expected. Yellen described the report as “impressive” and emphasized that it reflects more people wanting to work and finding jobs. Despite the hiring surge in September, wage growth has continued to slow, and labor force participation has remained steady.
Yellen highlighted that the labor market is not showing signs of overheating, and core inflation is well-behaved. The Federal Reserve has maintained its commitment to keeping interest rates elevated for an extended period.
Yellen also addressed concerns about the impact of rate rises on banks, stating that they have taken steps to address their vulnerabilities. She reassured that credit quality overall is “very solid,” and the rate rise is not putting significant pressure on households or businesses.
At the annual meetings, Yellen will focus on strengthening the financial resources of the World Bank and the IMF, supporting emerging and developing economies, addressing climate change, and countering China’s influence. However, she acknowledged the issue of underrepresentation for countries like China and emerging economies, which have less voting power in these institutions.
Yellen also touched on the IMF’s quota system, calling for it to be reevaluated. She emphasized the importance of China adhering to the institution’s norms, particularly in areas like debt restructuring and foreign exchange transparency. The Treasury secretary will also face questions about US support for Ukraine amid political dysfunction in Washington.
Yellen stressed the Biden administration’s commitment to providing funding for Ukraine and expressed belief that both Democrats and Republicans support it.
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