Yellen: Reason for Recent Rate Cut in the U.S. Has Largely Disappeared, Inflation Combined with Debt Risks Raises Concern

June 12: Former U.S. Treasury Secretary and ex-Federal Reserve Chair Janet Yellen told attendees at the 2026 Oriental Asset Management Global Investment Forum in Paris that the rationale for the Federal Reserve’s recent interest rate cuts has “largely disappeared,” and current inflation and macroeconomic uncertainty are severely constraining the central bank’s monetary policy space. Yellen highlighted that the U.S. economy is facing three overlapping supply-side shocks: price pressures from tariffs, energy disruptions stemming from tensions in the Middle East, and soaring electricity costs driven by artificial intelligence investments. Together, these factors are expected to keep inflation persistently above the Fed’s target in the near term. She also warned that the market is underestimating the scale of the U.S. federal government’s debt level. The combination of heavy debt burdens and rising interest rates is increasing the country’s fiscal vulnerability. Yellen called the U.S. fiscal policy trajectory “unsustainable,” noting that interest payments on the national debt now exceed defense spending, and the long-term U.S. Treasury market could face a reassessment of risk ahead. On growth, Yellen noted the labor market remains resilient, but shifts in inflation expectations will be the key variable guiding monetary policy. While the likelihood of short-term rate hikes is low, in the current environment, “the rationale for recent rate cuts has vanished,” and the market is in the process of readjusting its expectations for the Fed’s future rate path.