Yellen: Reforms made financial system safer, sounder

Federal Reserve Chair LONDON — Janet Yellen relayed her hope Tuesday that another repeat of the financial crisis will not occur “in our lifetimes.”

Addressing an audience at the British Academy in London, Yellen said the banking reforms put in place in recent years have made the financial system safer, and that the world should be able to avoid the type of devastating crisis that struck the global economy in 2008.

Yellen said that the changes implemented since 2008 have made the “system much safer and much sounder,” with banking regulators doing a better job searching for risks to financial stability, especially within unregulated sectors.

While not going so far as ruling another crisis out, she did lay out her hope that the next one “hopefully, it won’t be in our lifetimes.”

One growing concern among some in the financial markets is that some asset prices, such as stocks and housing, are beginning to look a bit overpriced — in the way that they did before the financial crisis struck.

But Yellen said the system is better able to handle any shocks that might occur if investors began dumping assets out of concerns about a future financial threat — the scenario that effectively pushed the global economy off a cliff in 2008.

“I think we have a strong banking sector that’s well-capitalized and has a lot of liquidity,” she said.

Yellen said the U.S. unemployment rate, which stands at a 16-year low of 4.3 percent, is “below the level that most of my colleagues believe is sustainable in the long run.”

Yellen said that most policymakers believe that as unemployment falls, it will begin pushing up wages and that will result in higher levels of inflation. The Fed has hiked its Fed funds rate by a quarter-point on three occasions since December, most recently this month, to a range of 1 to 1.25 percent, partly because of this concern.

Yellen declined to comment on her relationship with President Donald Trump but noted that it has been a long tradition in the United States for the Fed to have a close working relationship with the administration in power.

Yellen was responding to a question about her relationship with the president, who had attacked her handling of the Fed policies as “shameful” during last year’s campaign.

She said she was continuing that tradition with current Treasury Secretary Steven Mnuchin, with the two conferring often on various issues affecting the economy and financial regulation.

“I would say that I have got a good working relationship,” Yellen said, adding that the administration has respect for the independence of the Fed.