Janet Yellen, US Secretary of the Treasury, stated in Washington that banks are likely to become more cautious and may tighten lending further in the aftermath of recent bank failures, which could eliminate the need for additional Federal Reserve rate increases.

According to a CNN transcript, Yellen stated in an interview that policy actions to counter the systemic threat posed by the failures of SVB and Signature Bank last month had stabilized deposit outflows, and “things have been calm.”

US banks may limit lending, according to Yellen.

“Banks are likely to become somewhat more cautious in this environment,” Yellen stated in an interview. There may be additional restrictions on lending standards in the banking system as a result of this incident.

She stated that this would contribute to a credit restriction in the economy, which “could be a substitute for the Fed’s necessary interest rate hikes” However, Yellen stated that she had not yet observed anything “dramatic or significant enough” to alter her economic outlook. “Therefore, I believe the outlook remains one of moderate growth, a strong labor market, and declining inflation.”

Some Fed officials concur that the U.S. central bank should adopt a more cautious stance as they anticipate banks will restrict lending in the coming months.

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