Treasury Secretary Janet Yellen believes the risk of a US recession is diminishing as inflation decreases. In a recent interview with Bloomberg, Yellen highlighted the labor market’s resilience contributing to reduced chances of a US recession.
Furthermore, she suggests a slowdown in consumer spending could be the necessary trade-off to combat inflation effectively. She also emphasizes the declining odds of a recession due to the positive trend in both the labor market and inflation rates.
Lastly, according to Yellen’s interview with Bloomberg News, a decrease in inflation further strengthens her belief in a lower recession probability.
Resilience was Unexpected
Acknowledging the risk, Yellen mentions the Federal Reserve’s tightening policy with multiple interest-rate hikes. Yellen’s recent evaluation of the US economy comes after a May employment report exceeding economists’ expectations.
Furthermore, despite the Federal Reserve’s aggressive monetary tightening, home construction and retail sales have displayed unexpected resilience. She alludes to the potential for further interest-rate hikes by the Federal Reserve while discussing the risk.
The surprising strength in job gains and home construction and retail sales supports Yellen’s assessment.
Yellen Emphasizes Slowdown Amid Inflation
Yellen suggests that a slowdown in spending is necessary to control inflation effectively. She points out that the core measure of price increases, excluding food and energy, remains high.
According to the recent consumer price index release, the core inflation rate rose by 5.3% compared to the previous year. The surge in housing costs from last year contributed to a portion of the increase.
However, the headline CPI rate for May decreased to 4% from its peak of 9.1% in June last year. Yellen predicts that inflation has significantly decreased and expects further declines, partly due to an anticipated housing market adjustment.
She emphasizes the importance of controlling spending to curb inflationary pressures and achieve stability.
Suggestions about the Inflation Target Amid Recession Fears
Some economists debate whether the Fed should raise its inflation target from the current 2% rate. Yellen states that discussing a potential inflation target change is inappropriate during a time of battling price surges.
Yellen emphasizes that the current focus should be on containing the price surge rather than debating targets. Fed Chair Jerome Powell has consistently rejected the idea of changing the 2% inflation target.
Yellen talks With Chinese Premier Li Qiang
The venue offers Yellen an opportunity to interact with Chinese Premier Li Qiang, who is also present. Tensions between Washington and Beijing have risen due to President Biden’s remarks about President Xi Jinping.
Yellen acknowledges that China has shown a more constructive approach to debt relief for Zambia. At the Paris Summit, Zambia reached a preliminary agreement to restructure its debt with bilateral lenders.
This agreement sets a precedent for other countries struggling with debt repayment. Yellen has advocated for this debt relief initiative for the past six months.
It is significant as it is the first major relief a developing country achieves under the Group of 20’s Common Framework. The Common Framework brings traditional creditor nations of the Paris Club together with China and India.
Yellen’s efforts have contributed to fostering cooperation and negotiations between these parties. The interaction between Yellen and Premier Li Qiang at the event holds importance in the context of these developments.
Her views on the Chinese Economy
In recent weeks, Chinese authorities have taken steps to address economic challenges, including cutting interest rates. The property market, burdened by leverage and construction issues, has been a focus of their measures.
Demographic concerns, such as a declining population and high youth unemployment rate, also trouble policymakers. Yellen acknowledges that China aims to maintain a favorable climate for foreign investment.
She emphasizes that China faces both short-term and medium-term economic problems. The adoption of measures to stabilize the property market reflects their commitment to addressing immediate challenges.
Yellen’s comments highlight the complexity of China’s economic situation and the need for ongoing attention.
Yellen made these remarks while attending a summit in Paris focused on reforming global development-lending architecture. The summit was organized by French President Emmanuel Macron, highlighting its importance to the US administration.
Yellen’s statement reflects the prioritization of addressing immediate challenges over considering policy changes.