A recession in the US is not “inevitable” but the economy is likely to slow down, Finance Minister Janet Yellen said on Sunday, days after the US Federal Reserve raised interest rates, increasing fears of a contraction.
“I expect the economy to slow down” when it moves to stable growth, she said on ABC’s “This Week”, but “I do not think a recession is inevitable at all.”
The US economy has recovered strongly from the damage caused by Covid-19, but soaring inflation and a spin in the supply chain exacerbated by the war in Ukraine have increased pessimism.
Wall Street shares plummeted after the US Federal Reserve, in an attempt to curb inflation, on Wednesday raised the reference lending rate by 0.75 percentage points, the sharpest rise in almost 30 years.
And economists are seeing worrying signs that consumer confidence is weakening, with spending on services being hit the hardest.
People are starting to wait with holiday plans – domestic flight bookings fell by 2.3 percent last month, Adobe Analytics reported – and are cutting back on restaurant visits, haircuts and home repairs.
Inflation “unacceptably high”
Yellen acknowledged that “inflation is obviously unacceptably high” and attributed it in part to the war in Ukraine, which has pushed up energy and food prices.
But she said she did not believe that “a decline in consumer spending is the likely cause of a recession.”
The US labor market is “undoubtedly the strongest in the post-war period,” Yellen said, predicting a slowdown in inflation in the coming months.
For Fed Chairman Jerome Powell – who succeeded Yellen in that position – to control inflation without weakening the labor market will require “skill and luck,” she said before adding, “but I think it is possible.”
The US economy shrank by 1.5 percent in the first quarter of this year, its first decline since 2020, and early indications point to a continued slowdown in key sectors including manufacturing, real estate and retail.
A recent survey of 750 business leaders from the Conference Board showed that 76 percent believed that a recession was on the way, or had already begun.
A recent analysis by the non-profit business group predicted a period of “stagflation” – stagnant growth combined with inflation – 2023.
Economist Larry Summers, who served as finance minister from 1999 to 2001, said a wide range of indicators – market volatility, interest rates and inflation among them – point to a recession on the horizon.
“All of this tells me that … the dominant probability would be that by the end of next year we would see a recession in the US economy,” Summers told NBC’s “Meet the Press.”
No news is bad news
Support the newspaper
Your contribution help us continue to deliver the stories that are important to you
Support us now
“Pain” at the pump
For now, Americans are trying to cope with some historically sharp price increases. The cost of gas at the pump, now around $ 5 per gallon, has roughly doubled in just two years.
Yellen was asked about proposals for a temporary repeal of federal gas taxes and expressed openness.
US President Joe Biden “wants to do everything he can to help consumers,” she said. “And it’s an idea that’s really worth considering.”
The White House recently confirmed that Biden will travel to the major oil producer Saudi Arabia during a trip to the Middle East next month.
The president is “very concerned about what people are experiencing at the pump,” Energy Secretary Jennifer Granholm told CNN on Sunday.
“Saudi Arabia is the head of OPEC and we must increase production so that ordinary citizens of America will not feel this pain as they do.”
#recession #inevitable #finance #minister