US Treasury Secretary Janet Yellen said Thursday that she believes inflation will decline next year, but there are risks related to Russia’s invasion of Ukraine as the economy remains vulnerable to supply shocks.
Yellen said the United States had a very tight labor market that was fueling inflationary pressure, but said she had confidence in the Federal Reserve’s actions.
It is possible to reduce inflation and maintain the labor market
He also considered that it is possible to reduce the record inflation in the United States and at the same time maintain a healthy labor market.
“I think there is a path in this that can be successful in reducing inflation while maintaining … a strong labor market,” Yellen said a day after the Federal Reserve (Fed, central bank) raised rates interest at 0.75% for the third consecutive time.
“I very much look forward to the Fed being successful,” he added.
On Wednesday, the Fed decided on another sharp increase in its key rate in an effort to slow the economy and fight inflation, a fight that its chairman, Jerome Powell, warned would be painful for the economy.
However, the shortage of workers in the US labor market, which translates into higher wages, is one of the inflationary sources that “likely” exerts pressure. “It is the job of the Fed (…) to face the imbalances of the supply and demand,” Powell said.
The Federal Reserve also updated economic forecasts on Wednesday, in which it contemplates more rate hikes, and for longer than it had anticipated.
The unemployment level is expected to average 3.8% in 2022 (vs. 3.7% previously forecast), rising to 4.4% in 2023 (from 3.9%). In August the unemployment rate was 3.7%, one of the lowest in 50 years.
Yellen acknowledged that “the pressure of the labor market needs to be relieved”, without this implying “that the unemployment rate (necessarily) increases so much”.
“We can still have a good, solid labor market. Without so much pressure on wages,” he said.
With information from Reuters and AFP.