There is “a risk” of a recession in the United States due to the measures taken to slow inflation, which will necessarily weigh on economic activity, but it is possible to escape it, the American secretary said on Sunday. Treasure, Janet Yellen.
A recession in the United States is “a risk when the Fed tightens its monetary policy in the face of inflation,” said Joe Biden’s Minister of Economy and Finance, on CNN.
“So that’s obviously a risk that we’re monitoring,” she added, but “we have a strong labor market, and I believe it’s possible to keep it that way.”
Faced with inflation which had reached its highest level in forty years in June, before slowing down a little in July (8.5%), the central bank is gradually raising its key rates in order to slow down economic activity and loosen price pressure.
These key rates set the tone for commercial banks for the interest rates on loans they offer to their customers, individuals and businesses. Higher rates therefore mechanically reduce consumption and investment.
“Soft Landing”
“Inflation is much too high, and it is essential to reduce it”, hammered Janet Yellen.
The Fed hopes for a “soft landing”, that is to say bring inflation back to its target of 2%, without plunging the economy into recession, which would cause a surge in unemployment.
“I believe there is a way to get there. […] In the longer term, we cannot have a strong labor market without controlled inflation,” the minister said.
While the world’s largest economy’s GDP contracted in the first two quarters of 2022, fitting the classic definition of a recession, she again asserted that was not the case.
“We are not in a recession. The labor market is exceptionally strong. […] There are nearly two vacancies for every worker looking for a job,” said Janet Yellen.
The job market remains very tense with a major labor shortage. The unemployment rate, however, rose a little in August, to 3.7%, in particular as the participation rate rose, a sign that many workers left on the side of the road due to COVID-19 are returning to the market. .