Treasury Secretary Janet Yellen has warned that the threat of a US recession cannot be completely ignored, emphasizing the importance of recognizing and managing the potential for economic slowdown. In an interview with CBS's Face the Nation, Yellen stated that it is "appropriate and normal" for growth to moderate, while highlighting concerns about persistently high inflation levels.
Yellen acknowledged that the US currently has a healthy economy and a robust labor market. However, she emphasized that inflation remains a significant concern for both policymakers and the American people. While she expressed hope that inflation will gradually decrease over time, Yellen also stressed the importance of achieving this within the context of a healthy labor market.
President Joe Biden, on the other hand, expressed optimism last month that the US will avoid a recession. He stated his belief that a recession, which has been looming for the past 11 months, will not materialize. However, Yellen's cautionary remarks indicate that the possibility of a recession should not be entirely dismissed.
Furthermore, inflation in the US is expected to have continued to soften in June. However, a core measure that excludes volatile energy and food prices is still running at a concerning pace, which keeps the Federal Reserve inclined towards resuming interest-rate hikes. The government's upcoming report is forecast to show a 3.1% year-on-year increase in the consumer price index, the smallest annual rate since March 2021. The core CPI is expected to rise 5% compared to the previous year, still significantly above the Federal Reserve's target.
However, Federal Reserve Bank of Chicago President Austan Goolsbee conveyed optimism on Friday, stating that policymakers are on a "golden path" to curb price growth without triggering a recession. Data on the labor market showed a slowdown in job growth in June, indicating a potential easing of price pressures.
Goolsbee revealed that the consensus among Federal Open Market Committee (FOMC) participants is for one or two more interest rate hikes this year, which could occur at any of the upcoming meetings in the second half of the year. The next policy decision is scheduled for July 26.
During her visit to Beijing, Yellen discussed US-China economic relations and expressed her intention to address concerns regarding China's restrictions on chipmaking metals. She assured that any additional controls on outbound investments would be narrowly targeted and would not significantly impact bilateral investments with China. Yellen emphasized the importance of bilateral relations between the two countries, noting that talks with her Chinese counterparts have helped bring the relationship to a more stable footing.
Yellen's remarks serve as a reminder that while the US economy currently appears healthy, careful monitoring and appropriate measures must be taken to manage potential risks and maintain stability. The path to lower inflation and sustained growth will likely require continued attention and concerted efforts from policymakers.