U.S. Treasury Secretary Janet Yellen mentioned she expects strong progress within the coming yr, with a attainable “gentle touchdown” for the economic system because the Federal Reserve strikes to deliver down inflation.
“I do consider we’re going to see strong progress within the coming yr,” Yellen mentioned in an interview at a Wall Avenue Journal occasion Wednesday. “The Fed will should be skillful and likewise fortunate, however I consider it’s a mix that’s attainable.”
A lot of economists have predicted a recession in 2023 because the Fed ramps up rates of interest — together with with a half-percentage-point hike anticipated later Wednesday. However Yellen mentioned that “a gentle touchdown is feasible.”
The Treasury chief mentioned that whereas shopper costs have surged, medium-term expectations for inflation haven’t been so affected. Meaning this can be a completely different sort of inflation than that confronted by former Fed Chair Paul Volcker, Yellen mentioned. Volcker tightened financial coverage so aggressively within the early Nineteen Eighties that it brought about a pointy recession.
She acknowledged the worldwide economic system confronted quite a lot of dangers emanating from Russia’s invasion of Ukraine, significantly its impact on world costs of vitality and meals commodities.
Greenback Feedback
Yellen individually warned the U.S. will probably take extra “actions” towards Russia if it retains up its invasion of Ukraine, and can proceed to seek the advice of with European allies on that entrance. She mentioned there’s proof the present sanctions are working to undermine the Russian economic system, however there are additional steps that the U.S. can take.
The Treasury chief expressed no worries over the strengthening worth of the U.S. greenback in contrast with different main currencies. The feedback come because the Bloomberg Greenback Index trades round its strongest ranges because the Covid-19 disaster struck within the spring of 2020. The gauge has appreciated about 10% over the previous yr, making imports cheaper and U.S. exports much less aggressive.
“I consider in a market-based worth for the greenback,” Yellen mentioned. The Fed is elevating rates of interest, she mentioned, and that’s attracting traders to higher-yielding U.S. securities. “In a method that’s a part of how a tighter financial coverage works.”
A quickly widening U.S. commerce hole brought about one of many greatest hits to the nation’s gross home product from web exports within the postwar period final quarter. Yellen referred to as the disappointing GDP information “peculiar” and “probably not learn on the underlying power of the economic system.”
Asset Valuations
Preliminary information launched final week by the Commerce Division confirmed U.S. gross home product shrank at a 1.4% annual tempo within the first three months of this yr, the primary drop because the second quarter of 2020. The decline was additionally affected by a slower buildup of inventories.
Yellen mentioned a greater measure of the economic system’s underlying momentum was present in actual remaining gross sales to home purchasers. That rose at an annualized price of two.6% final quarter.
She additionally expressed little concern over monetary stability. Asset valuations are excessive, together with within the inventory market, however, not like earlier than the monetary disaster of 2008, banks are wholesome and credit score high quality is “glorious,” she mentioned.
Yellen continued to defend the American Rescue Plan, the Biden administration’s $1.9 trillion assist bundle that’s now seen by many economists as extreme and having contributed to the very best inflation price in 4 many years. Whereas it added to the demand and thus to cost pressures, the Treasury secretary mentioned it was “justified and acceptable on the time given the dangers that the economic system confronted.”
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