Yellen sees economic risks from Gaza conflict, says U.S. always looking at sanctions

By Andrea Shalal and David Lawder

MARRAKECH, Morocco (Reuters) – U.S. Treasury Secretary Janet Yellen said the unprecedented attacks on Israel by Palestinian Islamist group Hamas posed additional risks to an already tepid global economic outlook, but the United States still appeared headed for a soft landing.

Yellen condemned Saturday’s attacks on Israel and pledged Washington’s strong support for Israel “in any way that’s necessary,”

She told a news conference on the sidelines of World Bank and International Monetary Fund annual meetings that funding for Ukraine and “resources” for Israel were an “absolute top priority” for the Biden administration.

Crude oil prices jumped and safe-haven currencies like the yen rose following a massive incursion into Israel from Gaza launched by Hamas on Oct. 7 that has triggered ongoing retaliatory strikes by Israel on the Gaza Strip.

Yellen said she had nothing to announce yet on whether the United States would impose new sanctions on Iran if evidence emerged that the country was involved in the attack, and said Washington also had sanctions in place on Hamas and Hezbollah.

“This is something that we have been constantly looking at, and using information that becomes available to tighten sanctions,” she said. “We will continue to do that.”

As Israeli warplanes bombed Gaza neighborhoods ahead of a potential ground offensive and a U.S. aircraft carrier strike group arrived in the eastern Mediterranean Sea, Yellen downplayed the potential for the conflict to batter the global economy.

“Thus far, I don’t think we’ve seen anything suggesting it would be very significant,” she said.

World Bank President Ajay Banga told a separate news conference that the conflict would complicate the global economy’s path, echoing comments in a Reuters interview on Tuesday.

“I believe that wars are completely, extremely challenging for central banks who are trying to find their way through a very difficult situation, to a relatively soft landing,” Banga said.


Asked whether Washington could reverse its decision to unfreeze $6 billion in Iranian funds as part of a U.S.-Iran prisoner swap in September, Yellen said those funds had not been touched yet, but Washington was keeping its options open.

“These are funds that are sitting in Qatar that were made available purely for humanitarian purposes, funds that have not been touched. I wouldn’t take anything off the table in terms of future possible actions.”

U.S. Secretary of State Antony Blinken has said he had “not yet seen evidence that Iran directed or was behind this particular attack, but there’s certainly a long relationship.”


She said she continued to expect a soft landing for the U.S. economy, but conceded that exogenous shocks – such as Russia’s invasion of Ukraine in February 2022 and the attacks on Israel – brought additional risks.

“Of course the situation in Israel causes additional concerns. I’m not saying soft landing is an absolutely sure thing. But I continue to think it’s the most likely path,” due to the resilience in the labour market and moderating wage pressure, Yellen told a briefing.

Yellen said Washington was monitoring the potential economic impact of the escalating conflict, though it was unlikely a major driver of the global outlook.

(Reporting by Andrea Shalal; Editing by Chizu Nomiyama)