Yellen: US Financial Sector Closely Watched For Risks Amid Global Volatility

WASHINGTON (Sputnik) - The US financial sector is being closely monitored for risks amid increased global market volatility, Treasury Secretary Janet Yellen said Monday.

To date, the United States' financial system has not been a source of economic instability and has remained resilient, but regulators are still working to monitor private fund leverage and develop policies to reduce the risk of runs in money market and open-end bond funds, Yellen said at the annual meeting of the  Securities Industry and Financial Markets Association (SIFMA).

"It's not unexpected that in a world of increased volatility that liquidity should diminish somewhat or the cost of transacting might rise a little," Yellen said. "That said, we want to make sure that going forward, our Treasury markets remain deep, liquid and well-functioning. The things that we saw in March of 2020 were of concern. We have an interagency working group and we are working actively to try to bolster the functioning of that market to look at what might be appropriate."

She added that the Treasury was working with regulators on reforms to improve the Treasury debt market's ability to absorb shocks and disruptions, rather than amplify them.

"The treasury market now reflects greater uncertainty about the economic outlook, but volumes remain strong and transactions continue to be executed," Yellen said. "Increased market volatility may expose vulnerabilities in non-bank financial intermediation."

Global markets from Treasuries to equities have been volatile over the past few months as investors react to concerns that the United States might be beset with a deep recession if the Federal Reserve keeps increasing interest rates to curb the worst inflation in 40 years.

On Wall Street, stocks have gyrated while repeatedly slowing losses of 20% or more on the year that put them in bear-market territory. On the bond market, yields attached to the benchmark 10-year Treasury note have hit 14-year highs, signaling investor fear.

Inflation, as measured by the Consumer Price Index, stood at 8.2% for the year to September, not too far from the four-decade peak of 9.1% during the 12 months to June.

The Fed’s target for inflation is a mere 2% a year and it has said it will not back off on interest rate hikes until it achieves its aim. Since March, the central bank has raised rates by 300 basis points from an original base of just 25. The Fed intends to add another 125 basis points to rates before the year-end.