Janet Yellen: Recession isn’t inevitable, but inflation remains unacceptably high

The US Treasury Secretary expects the US economy to slow” to more “stable growth”. A recession is not “at all inevitable” as the Fed takes increasingly aggressive action to address sharply rising inflation, Treasury Secretary Janet Yellen said Sunday.

“Clearly, inflation is unacceptably high,” Yellen continued. “It’s President Joe Biden’s top priority to bring it down. And [Fed] Chair [Jerome] Powell has said that his goal is to bring inflation down while maintaining a strong labor market. That’s going to take skill and luck, but I believe it’s possible.”

“I expect the economy to slow,” Yellen told “This Week” anchor George Stephanopoulos. “It’s been growing at a very rapid rate, as the economy, as the labor market, has recovered and we have reached full employment. It’s natural now that we expect a transition to steady and stable growth, but I don’t think a recession is at all inevitable”.

The current inflation rate, year-over-year, is at a 40-year high of 8.6%, according to the most recent data from the Bureau of Labour Statistics. On Wednesday, in an effort to cool those rising costs, the Fed increased interest rates by three-quarters of a percentage point — marking the largest rate increase since 1994. A higher interest rate increases borrowing costs for consumers and companies, potentially slowing inflation by decreasing demand.

“You say it’s not inevitable, but I guess the question is: Is it likely?” Stephanopoulos pressed Yellen, citing data on consumer pull-back and slowing movement in the job market and noting that she, Biden and Powell were all wrong about inflation’s lasting impact last year.

“Consumer spending remains very strong. There’s month-to-month volatility, but overall spending is strong, although patterns of spending are changing and higher food and energy prices are certainly affecting consumers,” Yellen replied.

“But bank balances are high,” she continued. “It’s clear that most consumers, even lower-income households, continue to have buffer stocks of savings that will enable them to maintain spending. So I don’t see a drop-off in consumer spending as a likely cause of the recession in the months ahead. And the labor market is very strong, arguably the strongest of the post-war period.”

Yellen attributed inflation partly to Russia’s invasion of Ukraine, saying the conflict had increased global prices on energy and food.

“It’s important to recognize that the United States is certainly not the only advanced economy suffering from high inflation,” Yellen said. “We see it in the UK, we see it in France, Germany, Italy; and the causes of it are global, not local.”

She also said “energy prices spillover is really half of inflation,” but that Biden has been working to keep oil prices from going even higher. It is noteworthy that fuel prices are still at record highs in the United States after months of increases. The current national average is about $4.98 per gallon.