(Forward to clarify that Lacker is the former president of the Richmond Federal Reserve, in fourth paragraph)
Written by Susan Heavy and David Lauder
The US economy is strong on the back of strong consumer spending, but some areas are slowing, US Treasury Secretary Janet Yellen said on Wednesday, expecting continued progress in lowering inflation in the next two years.
In an interview with CNBC, Yellen also said that while banks may struggle with commercial real estate and face some consolidation, there is plenty of liquidity in the system and they should generally be able to withstand any stress.
Yellen said the legislation to raise the debt limit and reduce the deficit by more than $1 trillion over a decade would support the Fed’s efforts to reduce inflation.
Asked about former Richmond Federal Reserve Chairman Jeffrey Lacker’s opinion that the federal funds rate, currently between 5 and 5.25%, should rise to 6% to control inflation, Yellen said it was a decision by the US central bank.
“Consumer spending has continued to grow strongly, but you’re also seeing areas of the economy slowing,” Yellen said.
“That’s a judgment my former Fed colleagues can make. And as I said, I think the important thing is to try to bring down inflation. That’s a top priority.”
He said that banks will face some difficulties related to commercial real estate due to high prices and remote work, which has reduced the demand for office space, but stress tests have shown that they have sufficient capital, and bank supervisors are studying the situation closely.
“My general opinion is that the level of capital and liquidity in the banking system is solid and that even if there are some problems, the banks should be able to withstand the pressure,” he said.
Asked if he would support more bank consolidation, he said the current diversified system, with local, regional and large banks, was a “strength” to the US economy, but further consolidation was likely.
Yellen said she wouldn’t like to see America’s banking diversity threatened, “but certainly in this environment some banks are having pressure on earnings and there’s a drive to see some consolidation.”
(Edited in Spanish by Carlos Serrano)
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