Saturday, July 2, 2022

Janet Yellen says recession is not ‘inevitable’, but economy is likely to slow

Finance Minister Janet Yellen said Sunday she expects the U.S. economy to slow as the federal government works aggressively to reduce inflation, but that it does not think a recession is “at all inevitable,” as some economists fear.

Yellen, who spoke on ABC’s “This Week”, shared her optimistic view after the Federal Reserve raised interest rates by three quarters on Wednesday, raising concerns that higher borrowing costs mixed with high inflation could cause an economic downturn.

Inflation is currently at a peak of four decades, with consumer prices rising 8.6% from where they were a year earlier, according to a May Inflation Report. The interest rate hike aims to bring inflation down to 2%.

“I expect the economy to slow down,” Yellen said. “It grew at a very rapid pace as the economy — as the labor market recovered and reached full employment. It is, of course, now that we expect to switch to steady and stable growth. But I do not think a recession is inevitable at all. “

Yellen acknowledged that inflation was “unacceptably high”, but said it was “likely to fall” in the months ahead. After having high inflation during the first half of this year, she said, “actually includes high inflation for the entire year.”

Yellen pointed to Russia’s war against Ukraine for helping to increase energy and food costs, as well as coronavirus restrictions in China that are tightening supply chains. That disruption came when U.S. consumer spending recovered from the worst of the COVID-19 pandemic, which created more demand than supply. U.S. gas and fuel consumption is also lower than before the pandemic, she said, leading to a decline in fuel production and higher prices.

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“I think producers were partly unaware of the strength of the recovery in the economy and were not ready to meet the needs of the economy. “High prices should persuade them to increase inventory over time,” she said.

Former Finance Minister Lawrence Summers in a separate interview with NBC’s “Meet the Press” on Sunday expressed a more ominous view of the country’s economic future.

“The overwhelming likelihood is that by the end of next year we will see a recession in the US economy,” he told host Chuck Todd.

Summers wrote a paper earlier this year which found that the US economy had entered a recession since 1955 within two years after the inflation average rose above 4% and unemployment below 5%. The US unemployment rate is currently at 3.6%.

Economists recently polled by The Wall Street Journal also predicted a 44% chance that a recession would occur within the next 12 months. This is higher than a chance of 28% in the next 12 months from April and 18% in January.

“We now believe the U.S. economy is heading for a slight recession in the coming months,” Greg Daco, chief economist at consulting firm EY-Parthenon, told the Journal. “While consumers will continue to spend freely on leisure, travel and hospitality over the summer, a persistently rising inflation background, rising interest rates and falling share prices will erode spending power, severely curtail housing activity and restrict business investment and leasing.”

Summers shared his view that cutting rates “is the right thing to do” to keep prices low. Like Yellen, he also encouraged congressional measures to reduce pharmaceutical costs, which he said would help health care and reduce inflation. He also endorsed a partial repeal of Trump-era tax cuts and the short-term release of fossil fuels. Still, he said he believed giving Americans a “gas tax vacation,” which some congressional leaders suggested, and Yellen said it was “worth considering” would be “kind of a gimmick.”

Nation World News Desk
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