A recession in the United States is not “inevitable”, Treasury Secretary Janet Yellen said on Sunday, just days after the US Federal Reserve raised interest rates, raising fears of an economic contraction.
“I expect the economy to slow down” as it transitions to steady growth, she said on ABC’s “This Week,” but “I don’t think a recession is due. all inevitable”.
The US economy has recovered strongly from the damage caused by Covid-19, but soaring inflation and supply chain problems exacerbated by the war in Ukraine have increased pessimism.
Shares on Wall Street fell after the U.S. central bank raised the benchmark borrowing rate by 0.75 percentage points on Wednesday, the biggest rise in nearly 30 years.
And economists are seeing worrying signs that consumer confidence is weakening, with people starting to delay vacation plans, dine out or make home repairs.
Yellen conceded that “clearly inflation is at an unacceptable level”, attributing it in part to the war in Ukraine, which has driven up energy and food prices.
But she said she did not believe that “a decline in consumer spending is the likely cause of a recession”.
Yellen argued that the US labor market is “arguably the strongest in the post-war period” and she predicted the pace of inflation would slow in the coming months.
She acknowledged, however, that as Fed Chairman Jerome Powell struggles to control inflation while keeping the labor market strong, “it’s going to take skill and luck.”
Soaring gasoline prices — at around $5 a gallon, they’ve roughly doubled in a few years — are a pressing concern for many Americans.
Asked about proposals to temporarily suspend federal gasoline taxes, Yellen expressed openness.
US President Joe Biden “wants to do everything he can to help consumers,” she said. “And it’s an idea that’s definitely worth considering.”
On whether Biden could continue to lower consumer prices by lifting tariffs on Chinese goods, Yellen argued.
The Donald Trump-era tariff overhaul “is something that’s being considered,” she said.
“I don’t want to preempt the political process.”