Janet Yellen says US likely to avoid a recession

US Treasury Secretary Janet Yellen said there's nothing to suggest a recession is in the works. PHOTO: AFP

NEW YORK (NYTIMES) - Treasury Secretary Janet Yellen said on Thursday (June 9) that she expected the US economy to slow as the Federal Reserve raised interest rates to tame inflation, but she did not anticipate a recession.

Speaking at The New York Times DealBook D.C. policy forum, Dr Yellen said the global economy faced an array of serious threats and that gas prices were unlikely to fall in the near term. However, she said the United States economy remained strong despite rising prices and that a solid labour market and robust household finances should be able to continue to propel consumer spending.

"There is nothing to suggest a recession is in the works," Dr Yellen said.

Dr Yellen has faced criticism this month after she acknowledged that she was wrong about the path that inflation would take in the past year, when she - along with many other economists - initially described price gains as "transitory". The Treasury Secretary has also faced questions about whether President Joe Biden's US$1.9 trillion (S$2.6 trillion) stimulus package was responsible for fueling inflation.

Dr Yellen said on Thursday that she did not regret the scale of the aid, known as the American Rescue Plan, given the dire economic predictions at the time of its passage in March 2021.

"I wouldn't do it differently," Dr Yellen said, noting that forecasters were anticipating high unemployment for an extended period. "I was very supportive of the American Rescue Plan."

Although Dr Yellen expressed optimism that the US would be able to avoid a recession, the economy faces some serious headwinds, including the war in Ukraine, higher energy prices and the continuing Covid-19 lockdowns in China. It will be up to the Fed, she added, to achieve a so-called soft landing where it raises borrowing costs enough that it reduces demand and tames price gains without causing a recession.

"It is an art," Dr Yellen said of the Fed's job.

The Treasury Secretary added that she expected US economic growth to be slower than the rapid clip of last year's rebound, but said she did see a path to curbing demand without causing a deep contraction. "We want to transition to stable, strong growth," she said.

She dismissed the view of some Democrats that corporate greed is to blame for rising prices, suggesting that she sees it as more of a matter of supply and demand. She also suggested that opening a pathway to more immigration to the US could help alleviate rising prices by easing the nation's labour shortage.

"Immigration has been very low," Dr Yellen said. "Certainly, boosting labour supply would be a way to relieve some of the tightness in the labour market."

However, Dr Yellen acknowledged that views about the economy are heavily coloured by inflation and petrol prices. This week, the national average hit US$5 a gallon, and Dr Yellen did not say whether relief is on the way.

"It is unlikely that gas prices are going to fall any time soon," she said.

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