The financial system works well despite ‘volatility’ pressures

US Secretary of the Treasury Janet Yellen testifies during a hearing before the Senate Committee on Banking, Housing and Urban Affairs on Capitol Hill November 30, 2021 in Washington, DC.

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Treasury Secretary Janet Yellen believes the US financial system is working fine, but the Russian invasion of Ukraine and China’s Covid-19 lockdowns are making some products more expensive.

Yellen, who will testify before the Senate Banking Committee on Tuesday, said neither she nor other top financial regulators would be surprised to see market turmoil continue through the summer.

“There is potential for continued global growth volatility and inequality as countries continue to grapple with the pandemic,” Yellen said in her written testimony, which was released by the committee ahead of the hearing.

“Russia’s unprovoked invasion of Ukraine has further increased economic uncertainty,” he said. “The US financial system has continued to function in an orderly manner, although valuations for some assets remain high compared to historical values.”

U.S. stocks sank again on Monday as the broad S&P 500 index posted its longest losing streak since mid-2011 and hit a one-year low as rising interest rates fueled concerns about monetary conditions. much stricter.

Despite the references to the Russian assault on Ukraine, Yellen’s upcoming testimony will amount to a review of the Financial Stability Oversight Board’s 2021 annual report, which the Treasury Department released in December.

Yellen said council members want to ensure that banks and other financial firms better understand their climate-related risks through improved data and stricter disclosure requirements from publicly traded companies.

The Treasury secretary also referred to the council’s studies on digital assets, which she described as full of opportunities and potential risks.

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“With regard to digital assets, new products and technologies may present opportunities to promote innovation and increase efficiency. However, digital assets may present risks to the financial system,” he said in prepared remarks. He added that the council, which was created in response to the 2008 financial crisis to identify emerging threats to the broader economy, is drafting a report on risks and “regulatory gaps.”

The report, which provides insight into the health of the financial system of organizations including the Treasury, the Securities and Exchange Commission and the Federal Reserve, came before Moscow’s invasion and Beijing’s crackdown on Covid cases.

Both developments have caused supply chain headaches, as the war in Ukraine raises the cost of oil, wheat and corn, and China’s strict lockdowns hit manufacturers and increase labor shortages.

When the Treasury Department released the report on Dec. 17, regulators noted that equity markets had hit record highs thanks in part to “low” interest rates.

Since then, the S&P 500 is down almost 13%, the price of a barrel of oil has risen about $30 and the 10-year Treasury yield has risen north of 3.2%, its highest point since November. of 2018.

Senator Sherrod Brown (D-OH) speaks at the 2019 National Action Network National Convention in New York on April 5, 2019.

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In addition, fears of inflation have increased and the macroeconomic environment has been reeling thanks to Russia’s attack on Ukraine.

But while the events of the first quarter of 2022 may make some parts of the FSOC report seem outdated, concerns about inflation have remained constant.

Investors, now more fearful of a recession in late 2022 or 2023, say the Fed must be careful raising interest rates and not weigh on economic activity more than is necessary to cool inflation.

Banking Committee Chairman Sen. Sherrod Brown, D-Ohio, and Ranking Member Sen. Pat Toomey, R-Pennsylvania, will likely grill Yellen on Tuesday to gauge her current thinking on topics such as inflation, the economy supply chain resilience and the Federal Reserve’s recent move to raise the overnight lending rate by half a percentage point.

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