Treasury Secretary Janet Yellen struck a cautiously optimistic tone for 2023, predicting a big slowdown in inflation and stressing that a recession is not needed to bring prices back under control.
“I believe you will see much lower inflation by the end of next year if there is no unexpected shock,” Yellen told CBS’s “60 Minutes.” in an interview that aired Sunday.
Yellen referred to falling gas prices, AAA said Monday the national average is down 52 cents per gallon in the past month — falling shipping costs and shortening shipping delays.
“I hope it will be short-lived,” Yellen said of the current period of high inflation. “We learned many lessons from the high inflation we experienced in the 1970s. And we are all aware that it is extremely important that inflation be brought under control and not become endemic to our economy. And we’re making sure that doesn’t happen.”
Yellen, like many economists and even the Federal Reserve, was previously too bullish on inflation. She admitted earlier this year that she was “wrong” about the path of inflation, Wolf Blitzer told CNN in June that she “didn’t fully understand at the time” the “major shocks to the economy” that would come from Russia’s war in Ukraine.
Comments come after that Friday’s hotter-than-expected wholesale inflation report, which showed that producer prices rose in November at the slowest annual pace in 18 months.
The more closely watched consumer inflation report due on Tuesday this week is expected to show a similar slowdown in consumer prices.
The Federal Reserve is expected to deliver a seventh straight interest rate hike on Wednesday, although investors are betting the US central bank will slow the pace of rate hikes from three-quarters of a point to half a point. Aggressive Fed Rate Hikes Raise Borrowing Costs – Credit Card Rates are record high — and raised fears of a recession.
Yellen acknowledged that a recession is possible in the coming months – although the former Fed chair emphasized that inflation is not required to be tamed.
“There is a risk of a recession,” Yellen said. “But it’s certainly not, in my view, something that’s needed to bring down inflation.”
Like other Biden administration officials, Yellen has argued that the economy is in the midst of a healthy transition from rapid growth to something more sustainable.
“We had a very quick recovery from the pandemic. Economic growth was very high,” Yellen said. “In order to reduce inflation and because almost everyone who wants a job has a job, growth must slow down.”
Yellen said the U.S. economy is at or near full employment, meaning it is “not necessary” for rapid growth to put people back to work.
The finance minister said he was trying to instill a sense of compassion and urgency in policy-making by stressing to his staff that real people were suffering.
Yellen recalled how in 2009, when millions of people were out of work in the middle of the Great Recession, she reminded her staff at the San Francisco Federal Reserve, where she was president from 2004-2010, that behind the labor market statistics there are real people, and economists should be concerned about their welfare.
“I think I said, ‘They’re fucking people,'” Yellen said. “I wanted the people who worked for me to take seriously the harm and misery that was being experienced by too many Americans.”
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