- Yellen warned that Trump’s tariffs are shaking global trust in U.S. economic stability and Treasury bonds.
- She criticized the idea of shifting to short-term debt, urging consistent and predictable financing strategies.
- Yellen fears the U.S. could become isolated, giving China more room to build ties with key American allies.
Former Treasury Secretary Janet Yellen didn’t mince words on Monday, voicing deep concern over the ripple effects of President Trump’s latest tariff blitz and foreign policy stance. Speaking on CNBC, she warned that allies’ faith in the U.S. might be unraveling—and investors may already be steering clear of American assets.
“We’re seeing something troubling,” Yellen said. “Treasuries are supposed to be the world’s safe haven. But that trust… it’s starting to crack.” She pointed to last week’s jump in Treasury yields, which rise when bond prices fall, as a flashing signal of eroding confidence.
Treasury Yields Rise, Confidence Falls
Even though yields eased a bit Monday—dropping to 4.41% after word got out that smartphones, chips, and computers would be temporarily spared from the harshest China tariffs—they’re still well above levels from earlier this month. “It’s not total dysfunction,” she said, “but this kind of pattern, this slow erosion in trust… it’s really worrisome.”
Yellen said she was encouraged by decent demand in recent long-term bond auctions. Still, she dismissed the idea of pivoting to short-term bill issuance just because long-term yields were spiking. “That’s not how you respond to market stress,” she added. “You need consistency and predictability when it comes to financing.”
U.S. Alliances at Risk
But her biggest worry isn’t just about bond markets—it’s the broader picture. “We’re swinging a sledgehammer at our alliances,” Yellen said bluntly, referencing fraying relationships tied to NATO, support for Ukraine, and trade commitments under the U.S.-Mexico-Canada agreement.
She warned that Trump’s aggressive approach may leave the U.S. increasingly isolated. “We’re risking being seen as unreliable—and that creates openings for China to swoop in, even with our closest partners like Japan or South Korea.”
No Panic Yet, But the Clock Is Ticking
For now, she doesn’t see an immediate threat to financial stability. But if things slide further, she noted the Fed still has a playbook from the 2020 COVID crisis—emergency liquidity tools and all.
Interestingly, Yellen hasn’t spoken with Treasury Secretary Scott Bessent about these concerns, though her tone hinted that maybe… someone should.
