Banking and Capital Markets

Janet Yellen: We didn't see the financial crisis coming

The United States Federal Reserve Board building is shown in Washington October 28, 2014. The U.S. Federal Reserve this week will likely reinforce its stated willingness to wait a long while before hiking interest rates after a volatile month in financial markets that saw some measure of inflation expectations drop worryingly low.

The Federal Reserve did not see the financial crisis coming, Fed Chair Janet Yellen said at Harvard University, where she was awarded the Radcliffe Medal. Image: REUTERS/Gary Cameron

Akin Oyedele
Markets Intern, Business Insider
Our Impact
What's the World Economic Forum doing to accelerate action on Banking and Capital Markets?
The Big Picture
Explore and monitor how Banking and Capital Markets is affecting economies, industries and global issues
A hand holding a looking glass by a lake
Crowdsource Innovation
Get involved with our crowdsourced digital platform to deliver impact at scale
Stay up to date:

Banking and Capital Markets

The Federal Reserve did not see the financial crisis coming, even though there were apparent clues.

Janet Yellen at Harvard University
Image: Reuters

"We saw trees, and the house-price bubble was a tree," Fed Chair Janet Yellen said last week at Harvard University, where she was awarded the Radcliffe Medal.

"We really didn't see that coming."

She said the explosion in borrowing was a sign, but the Fed did not see the risks evolving into a full-blown crisis.

Yellen said former Fed Chairman Ben Bernanke did a "magnificent" job in steering policy to heal the economy after the Great Recession.

He was the "right person with the right intellectual background and courage to think outside the box," Yellen said.

On future monetary policy — what most people really wanted to hear about — Yellen said a rate hike in the coming months may be appropriate.

This isn't new from her. Minutes from the FOMC's April meeting made specific reference to their June meeting as a possible time for a rate-hike vote.

"If they were worried there was a difference between the market view and their own view, they probably resolved that worry by publishing the minutes and making clear what their view is," David Blitzer, chairman and managing director at S&P Dow Jones Indices, told Business Insider ahead of Yellen's remarks.

Yellen's comments renewed the market's conviction that the second rate hike of this cycle is drawing near. Treasurys fell, and the odds of a rate hike in the Federal Fund Futures market increased. Stocks slid to the lowest levels of the day.

Yellen repeated that if rates rise too quickly and there's a severe financial or economic downturn, there are limited policy tools the Fed would have to respond. For this reason, the Fed intends to proceed slowly.

We'll hear from Yellen one more time before the FOMC's next meeting, when she speaks at a World Affairs Council event in Philadelphia on June 6.

More from Business Insider:

Don't miss any update on this topic

Create a free account and access your personalized content collection with our latest publications and analyses.

Sign up for free

License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Banking and Capital MarketsFinancial and Monetary Systems
World Economic Forum logo
Global Agenda

The Agenda Weekly

A weekly update of the most important issues driving the global agenda

Subscribe today

You can unsubscribe at any time using the link in our emails. For more details, review our privacy policy.

4 ways AI could transform the economy as we know it

Dr Shaoshan Liu

February 29, 2024


About Us



Partners & Members

  • Join Us

Language Editions

Privacy Policy & Terms of Service

© 2024 World Economic Forum