Market Volatility Rise, Yellen “Monitors Closely”

The Secretary of the United States Treasury, Janet Yellen, has issued a warning that global financial stress could affect the US economy. To her, the economy has displayed resilience while the world goes through financial difficulty.

Global Financial Volatility

The world is faced with a volatile and dangerous economic condition, she said. This includes the rise in energy costs and increasingly volatile financial markets. 

Yellen answered more questions after delivering a speech in New York, Monday. In the current situation, the US could experience a risk to its financial stability, she said.

But Yellen said she does not see a cause for concern in the financial system of the US. Now that lending rates her high, she believes that banks are properly capitalized. She also said the balance sheets of businesses and households are in good shape.

Financial stability has been a priority for her in her term as Secretary. The UK has experienced a major sell-off of government bonds in the past few weeks. This saw the Bank of England stepping in for an emergency bond purchase.

The Japanese Yen also tumbled and it necessitated repeated action from the Bank of Japan. The bank eventually had to pump in money to boost the Yen.

The US Economic Resilience

Yellen said the US has not been the source of financial instability to date. Her speech came at the annual Securities Industry and Financial Markets Association meeting. She said further that while watching out for other risks, the US system is resilient and operates well.

Treasury trades have been huge so far, Yellen declared. Nevertheless, she mentioned past phases of financial stress and said work is on for improvement. She assured, while answering questions, that the US Treasury is focused on fixing the issue.

Yellen equally talked about the risk of stress coming from private credits. She said the Treasury is equally paying attention to the possibility of higher volatility. Especially since it could open up vulnerabilities within non-bank financial institutions.

Regulators are said to be working together so they can properly monitor private funds’ leverage. They will also be able to develop policies that would cut advantages that could cause investors to run off.

Yellen’s statement is the second time she would admit concerns over the Treasuries this month. The US Treasury is a $23.7 trillion market.

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