Janet Yellen, the US Treasury Secretary, said banks are most likely to remain more cautious and may further tighten their lending rates in the backdrop of recent bank failures, which could possibly negate the need for more US Fed rate hikes.

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In an interview with CNN, Yellen said the policy actions fundamentally stem from the systemic threat caused by the recent failures of the Silicon Valley Bank as well as the Signature Bank, which had caused the deposit outflows to stabilise and now she said things have been calm.

She said the banks are likely to become a little more cautious in this environment. She said prior to this episode, there was already some tightening that of lending standards that was witnessed in the banking system and there could be some more to come as well.

She added that this would then lead to restriction in credit in the economy which can be a substitute for more interest rate hikes that the Fed would need to make.

She however said she was not seeing anything that was dramatic or significant enough in this area to alter the outlook.

She said the economic outlook would remain one for moderate growth as well as a strong labour market with inflation coming down.

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Some Fed officials have also said the US central bank may adopt a more cautious approach as they expect banks to tighten their lending rates in the coming months, CNBC reported.

The US Fed's weekly bank balance sheet has yet to showcase a material deterioration in the lending of banks, while also showing that the outflows of deposits have stabilised in the last two weeks after initial withdrawals around the SVB and Signature bank failures last month.

Regarding the concerns of deposit safety, if it is wise to develop a central bank digital currency that will allow the US consumers to have direct accounts with the Fed, Yellen said that there are important pros and some cons regarding such a decision, "so it’s one that needs to be seriously analyzed, but it could be something that is in Americans’ future," CNBC quoted her CNN interview.

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