Recession in the US is not “inevitable”, says Treasury Secretary Janet Yellen

The US Treasury Secretary Janet Yellen on Sunday said that recession in the United States is not “inevitable”, news agency AFP reported.

Her statement comes just a few days after the US Federal Reserve had hiked interest rates, which raised fears of an economic contraction.

The US economy has recovered strongly from the damage wrought by Covid-19, but soaring inflation and supply-chain snarls exacerbated by the war in Ukraine have increased pessimism.

Wall Street stocks tumbled after the US central bank on Wednesday raised the benchmark borrowing rate by 0.75 percentage points, the sharpest rise in nearly 30 years.

And economists see worrying signs that consumer confidence is weakening, with people beginning to hold off on vacation plans, dining out or doing home repairs.

Energy Secretary Jennifer Granholm said it’s one of the tools, but told CNN’s State of the Union that part of the challenge with the gas tax, of course, is that it funds the roads.

Yellen said overall consumer spending in the United States remains strong, while noting that spending patterns are changing, given the impact of rising food and energy prices. Yellen said household savings during the coronavirus pandemic will help sustain spending.

The national saving rate has fallen to about 6%, below pre-pandemic levels, after reaching 16.6% in 2020, the highest on record dating to 1948, and 12.7% in 2021.

I expect the economy to slow, Yellen said. It’s been growing at a very rapid rate and the economy has recovered and we have achieved full employment. We expect a transition to steady and stable growth, but I don’t think a recession is at all inevitable.

Yellen conceded that “clearly inflation is unacceptably high,” attributing it partly to the war in Ukraine, which has pushed up energy and food prices.

But she said she did not believe that “a dropoff in consumer spending is the likely cause of a recession.”

Yellen argued that the US labor market is “arguably the strongest of the postwar period” and she predicted that the pace of inflation would slow in coming months.

She acknowledged, however, that as Fed chair Jerome Powell works to control inflation while preserving labor-market strength, “That’s going to take skill and luck.”

Soaring gas prices — at some $5 a gallon, they have roughly doubled in a few years — are a pressing concern for many Americans. 

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