Janet Yellen Warns of Institutional Erosion Threatening U.S. Economic Stability
November 15, 2025102 ViewsRead Time: 3 minutes
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In a significant warning, former Treasury Secretary Janet Yellen has highlighted rising threats to the U.S. economy, emphasizing that political pressures on the rule of law, the Federal Reserve's independence, and universities could lead to "institutional erosion" detrimental to economic growth, as reported by Bloomberg.
Yellen reiterated points made in her July 2024 speech, asserting that her message about the importance of upholding democratic values is increasingly urgent, with American democracy described as being "in existential danger".
Economic Threats from Political Interference
Yellen referenced economic research, including studies by Daron Acemoglu and James Robinson, which illustrate the strong correlation between institutional integrity, rule of law, and GDP growth. She warned that policies driven by political motivations can undermine investor confidence, prompting businesses and investors to reevaluate their strategies.
She cautioned that politicizing regulatory decisions or undermining the independence of economic institutions could deter both domestic and international investment in the U.S. market.
Critique of Trump's Policies and Fed Independence
While Yellen has previously criticized President Donald Trump's policies, her current warnings are notably more pointed. She expressed concern over Trump's repeated pressures on the Federal Reserve to lower interest rates for political ends, describing this as a "serious erosion" of the central bank's independence.
Yellen remarked, "If these events were occurring in a developing nation, capital would have fled, the currency would have collapsed, and long-term interest rates would have surged," indicating that the U.S. could be heading towards instability akin to a "banana republic".
She also warned that efforts to isolate Federal Reserve officials, such as Lisa Cook, threaten the institution's autonomy, as the potential for dismissing members exposes it to political influence.
Impact on Universities and Innovation
Yellen pointed out that political interference in universities and restrictions on foreign students jeopardize one of the U.S.'s key growth engines: innovation. She stated, "We are beginning to lose scientists and researchers, and there is a climate of intimidation against those who express dissenting views."
She believes this could hinder the U.S.'s ability to lead in technology and artificial intelligence, areas critical for future economic growth.
Despite strong financial market performance, with the S&P 500 index climbing 18% since the elections, Yellen cautioned that this growth masks underlying "institutional fragility". She noted that the dollar has depreciated by 4% since tariffs were announced in April, indicating unexpected pressures on the currency.
Will Voters Respond?
Yellen acknowledged that institutional issues may not directly affect everyday expenses, like the cost of milk, but they pose accumulating risks to long-term economic stability. She stated, "Ultimately, it is up to Americans to recognize how these changes impact their daily lives."
She anticipates that voters will eventually reject this trajectory, similar to their response to rising inflation, but questioned how long that might take.
Yellen reiterated points made in her July 2024 speech, asserting that her message about the importance of upholding democratic values is increasingly urgent, with American democracy described as being "in existential danger".
Economic Threats from Political Interference
Yellen referenced economic research, including studies by Daron Acemoglu and James Robinson, which illustrate the strong correlation between institutional integrity, rule of law, and GDP growth. She warned that policies driven by political motivations can undermine investor confidence, prompting businesses and investors to reevaluate their strategies.
She cautioned that politicizing regulatory decisions or undermining the independence of economic institutions could deter both domestic and international investment in the U.S. market.
Critique of Trump's Policies and Fed Independence
While Yellen has previously criticized President Donald Trump's policies, her current warnings are notably more pointed. She expressed concern over Trump's repeated pressures on the Federal Reserve to lower interest rates for political ends, describing this as a "serious erosion" of the central bank's independence.
Yellen remarked, "If these events were occurring in a developing nation, capital would have fled, the currency would have collapsed, and long-term interest rates would have surged," indicating that the U.S. could be heading towards instability akin to a "banana republic".
She also warned that efforts to isolate Federal Reserve officials, such as Lisa Cook, threaten the institution's autonomy, as the potential for dismissing members exposes it to political influence.
Impact on Universities and Innovation
Yellen pointed out that political interference in universities and restrictions on foreign students jeopardize one of the U.S.'s key growth engines: innovation. She stated, "We are beginning to lose scientists and researchers, and there is a climate of intimidation against those who express dissenting views."
She believes this could hinder the U.S.'s ability to lead in technology and artificial intelligence, areas critical for future economic growth.
Despite strong financial market performance, with the S&P 500 index climbing 18% since the elections, Yellen cautioned that this growth masks underlying "institutional fragility". She noted that the dollar has depreciated by 4% since tariffs were announced in April, indicating unexpected pressures on the currency.
Will Voters Respond?
Yellen acknowledged that institutional issues may not directly affect everyday expenses, like the cost of milk, but they pose accumulating risks to long-term economic stability. She stated, "Ultimately, it is up to Americans to recognize how these changes impact their daily lives."
She anticipates that voters will eventually reject this trajectory, similar to their response to rising inflation, but questioned how long that might take.
