(WASHINGTON) – The United States faces “a risk” of recession as its battle with inflation could slow the nation’s economy, but it can still be escaped, Treasury Secretary Janet Yellen said on Sunday.
A recession in the United States is “a risk when the Fed (Federal Reserve, US central bank) tightens its monetary policy against inflation,” explained the leader in economic and financial issues of the Joe Biden government, in statements to CNN. .
“So it’s certainly a risk that we’re monitoring,” but “we have a strong labor market, and I think it’s possible to keep it that way,” he added.
Faced with inflation that had reached its highest level in June in 40 years, before tapering off a bit in July (8.5%), the Fed has gradually raised its benchmark rates, to slow economic activity and ease pressure on prices. .
These reference rates set the standard for commercial banks for the interest rates on the loans they offer to their individual and business customers. Higher rates decrease consumption and investment.
“Inflation is too high and it is essential to reduce it,” said Yellen.
The Fed hopes for a “soft landing”, that is, bringing inflation back to its 2% target, without plunging the economy into recession, which would boost unemployment.
“I think there is a path to get there. … In the long term, we cannot have a strong labor market without inflation under control,” Yellen said.
Although the Gross Domestic Product (GDP) of the world’s largest economy contracted in the first two quarters of 2022, which corresponds to the classic definition of a recession, the Treasury secretary insisted that this is not the case.
“We are not in a recession. The labor market is exceptionally vigorous. (…) There are almost two vacant positions for every worker looking for work,” he stressed.
The US labor market continues to have a severe labor shortage. However, the unemployment rate rose a bit in August, to 3.7%, not least as the participation rate rose, a sign that many workers who were sidelined by the Covid-19 pandemic are returning to work.