Janet Yellen, Vice Chair of the Board of Governors of the Federal Reserve System REUTERS/Robert Galbraith
- In view of the tight job market, Janet Yellen has become more optimistic about the US economy.
- It could see a “soft landing,” the finance minister said, after earlier showing recession risks.
- “The economy is basically in good shape and inflation is coming down,” she said on Friday, per Bloomberg.
Treasury Secretary Janet Yellen has become more optimistic about the US economy and the Federal Reserve’s ability to avoid sliding it into recession.
Investors have worried about the impact of the US Federal Reserve’s aggressive rate hikes. But Yellen suggested it would create a “soft landing” and lower inflation without triggering a severe and prolonged downturn.
At a briefing in India on Friday, she pointed to the strong US job market as a key factor, Bloomberg reported.
“I see a soft landing as a possible outcome and I hope we can achieve that,” said Yellen.
“The economy is fundamentally in good shape and inflation is declining when measured on a 12-month basis,” she added.
But the level of core inflation, which excludes volatile food and energy prices, is a sticking point.
“There’s still a lot to do to get it down,” Yellen said.
The Fed raised interest rates from near zero to 4.75% last year to try to cool rapidly rising prices. Inflation has slowed from a 40-year high of 9.1% but is still well above the Fed’s 2% target, coming in at 6.4% in January.
Last month, Yellen warned that there was still a possibility of a sharp slowdown in the US economy even as inflationary pressures eased.
“I’m reasonably happy with the data I’ve seen so far, but I don’t want to minimize the risk of a recession,” the former Fed chair said at the time.
Recent indicators have shown that the economy got off to a good start in 2023. In January, the US added 517,000 jobs — more than double what economists were expecting — and retail sales rose 3%, marking the biggest monthly gain since March 2021.
Even with this resilient labor market and consumer spending, stubbornly high inflation is causing investors to consider whether the Fed could keep interest rates high longer than previously expected.
Some believe the central bank could hike interest rates by as much as 50 basis points at its next meeting in March to ensure consumer price pressures don’t rebound.
A reading of the personal consumer spending index — the Fed’s preferred measure of inflation — is due later on Friday.
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