On Monday, US Treasury Secretary Janet Yellen painted a rosy picture for the US economy’s future during an interview with ABC’s Good Morning America, when she said she saw a path whereby the Federal Reserve would bring down inflation significantly, while the US economy stays strong due to the strength of the US labor market.
She said, “You don’t have a recession when you have 500,000 jobs and the lowest unemployment rate in more than 50 years.”
She continued, “What I see is a path in which inflation is declining significantly and the economy is remaining strong.”
Yellen acknowledged that inflation still remains too high at present, however she noted it has been falling consistently for six months now, and may continue to decline significantly in light of measures enacted by the Biden administration, which include recent measures designed to bring down the cost of gasoline and prescription drugs.
On Friday, the US Labor Department released its jobs data showing job growth accelerated very strongly in January, with non-farm payrolls increasing by 517,000 jobs, as unemployment fell to a 53 year low, at 3.4%.
Investors responded with concern that the reported strength in hiring, which occurred even as the technology sector was seeing unprecedented layoffs, might signal that the Federal Reserve would continue to deliver aggressive rate hikes. One metric Fed officials have indicated they wanted to see before reducing their monetary tightening was a cooling of the jobs market which would slow salary growth, which could then slow the rate of consumer price increases.
Yellen said the Biden administration’s top priority remained containing inflation, however she noted the US economy was continuing to be “strong and resilient.”
She added she felt that there were three separate legislative initiatives which were working to drive inflation down, the Inflation Reduction Act, the CHIPS Act, and the massive infrastructure law. She added she also felt there was a positive effect from the price cap imposed on Russian oil sales.
She also demanded Congress increase the US debt limit, noting that if they failed to do so, it would produce “an economic and financial catastrophe.”
She added, “While sometimes we’ve gone up to the wire, it’s something that Congress has always recognized as their responsibility and needs to do again.”
Last month the US reached its $31.4 trillion statutory debt limit, leading the Treasury to point out that it may not be able to stave off a default on the nation’s debts past the month of June.
Although President Biden and House Speaker Kevin McCarthy have held a meeting to discuss raising the debt ceiling, and have agreed to hold another meeting regarding it, the standoff has still spooked investors and unsettled markets.
