U.S. Treasury Secretary Janet Yellen believes that inflation has come down meaningfully but there’s still further to go for the Federal Reserve to achieve its 2% inflation target. She noted that the central bank has two risks to manage. “One is that inflation doesn’t come down back to their target as they envisioned, and the other is that the economy becomes too weak,” she detailed.
Yellen Discusses U.S. Economy
U.S. Treasury Secretary Janet Yellen discussed the state of the U.S. economy in an interview with CNBC on Wednesday as the Federal Reserve left interest rates unchanged for the third consecutive time.
While stating that “Inflation has come down meaningfully,” Yellen cautioned: “There’s further to go for the Fed to achieve its 2 percent objective, but I think we’re on a path, and you can see a consistent pattern in inflation coming down over time.” The U.S. November Consumer Price Index rose 3.1% on an annual basis.
Regarding whether the U.S. economy will slide into a recession, Yellen said:
Well, I believe in any year, even if you knew nothing about the economy, there’s a recession risk that’s over 10%. So, there is always some recession risk. I don’t think it’s particularly high. Consumer spending, we have seen remain solid.
“Gradually over time, I think people will feel better about the economy,” Yellen emphasized while admitting that people have noticed that “the level of prices in some cases is higher than it was before the pandemic.” She mentioned: “They notice their bills, certain bills are higher. Rent would be a very good example. Apartment rentals, for example.”
Yellen also reiterated her view that the U.S. economy is heading for a soft landing, adding that she saw a reasonable chance that growth would continue in 2024. “I think there’s a reasonable chance we get it. I think that we’re on that path. My baseline is that we’ll achieve a soft landing,” the Treasury Secretary described.
Commenting on whether the Federal Reserve will cut interest rates next year, Yellen opined: “As inflation moves down, it’s in a way natural that interest rates should come down somewhat because real interest rates would otherwise increase, which can tend to tighten financial conditions.” She continued:
They have two risks to manage. One is that inflation doesn’t come down back to their target as they envisioned, and the other is that the economy becomes too weak … I’m going to leave that call to them.
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