Treasury Secretary Janet Yellen said the U.S. economy remains strong despite the fact that it shrank in the first quarter of this year, adding that both persistently high inflation and spillovers from the war in Ukraine present economic risks.
“The outlook is very uncertain. The dangers at the global level are high,” she said. “I do worry about commodity prices, I am worried about spillovers from Russia and Ukraine that can have adverse impacts not just on the U.S. that is strongly positioned, but on Europe, on emerging markets.”
Ms. Yellen spoke virtually Wednesday at The Wall Street Journal’s CEO Council Summit in London as the Biden administration grapples with the Russian invasion of Ukraine and the highest inflation in decades. Ms. Yellen has been an architect of the wide-ranging sanctions the U.S. and its allies have placed on Russia, which included freezing the Russian central bank’s foreign currency reserves.
As the U.S. and the EU have worked closely on many of the sanctions, Ms. Yellen has also raised concerns about the latest step the 27-country bloc is proposing to punish Russia: an embargo on imports of Russian oil. She said Wednesday that the move could further raise oil prices, which did jump in the aftermath of the EU announcement.
“We need to see the conditions exactly how this is going to be accomplished because it could lead to higher global oil prices as well,” she said. “But the desire to respond to Russia’s unprovoked attack on Ukraine and to bring the war to an end is very understandable and important.”
Valdis Dombrovskis, the EU’s top economic and trade official, said during a recent visit in the U.S. that the bloc would work closely with the U.S. Treasury on studying the economic impacts of such a move. The Ukrainian finance minister said a drastic jump in oil prices could allow Russia to still net a similar level of revenue from energy sales after a European embargo.
Throughout their sanctions campaign, the U.S. and its allies have sought to minimize the blowback on their own economies—a goal that is becoming more difficult as the war grinds on and Western allies continue to increase their penalties on the Russian economy. Ms. Yellen said the U.S. is considering additional punishments, adding that the U.S. and its allies could begin rolling back sanctions on Russia if it reaches a peace agreement with Ukraine.
The move by the U.S. and its allies to freeze Russia’s central bank reserves has raised questions about the dollar’s status as the world’s reserve currency. Some observers have questioned whether countries may shift away from keeping reserves in dollars if they believe the U.S. and others could later seize them.
Ms. Yellen said Tuesday that the U.S. has only rarely frozen a central bank’s reserve assets, adding that no other currency can compete with the dollar’s broad availability.
“We have only rarely, I believe in the case of Iran and North Korea , imposed sanctions on a country’s central bank and the decision to do that to Russia was not one that was undertaken lightly,” she said. “I would point out that it involved a very broad coalition of countries that felt that it was warranted.”
“The bar is not low,” she added.
Much of the rest of the Biden administration’s policy agenda has run into headwinds in Congress, including a global minimum tax agreement that Ms. Yellen has pushed to pass into law. The EU has also not yet implemented the agreement.
Ms. Yellen said she expects the EU will move forward with the deal this spring and remains hopeful that Congress will hold up its end of the bargain in the coming months.
“So I really expect the EU to pass this into law this spring, and I think that would be a good example to the United States to show a very significant piece of the economic activity in the world has come into compliance,” she said.
Write to Andrew Duehren at [email protected]
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