Treasury Secretary Janet Yellen struck a hopeful tone in the Federal Reserve achieving a soft landing, saying the Central Banks will need some “luck” and “some skills,” but warned that a looming recession will be a “risk” for the Biden administration in the upcoming months.
Yellen was asked during a Sunday morning appearance on CNN ‘State Of The Union’ as to whether she shares the same warning as Sen. Elizabeth Warren (D-MA) who argued that the “pain” the Federal Reserves will inflict by raising interest rates “is going to tip this economy into recession.”
“Well of course it’s a concern,” Yellen responded. “The Fed is going to need great skill and also some good luck to achieve what we sometimes call a soft landing, which is bringing inflation down while maintaining the strength of the labor market.
“My hope, I believe there is a path to accomplishing that and my hope is that we will achieve a soft landing but Americans know that it’s essential to bring inflation down and over the longer run. You can’t have a strong labor market without inflation under control,” Yellen added.
A soft landing is the Federal Reserve goal it hopes to achieve during its fight to cool down inflation down to its 2% target.
When pressed if the Fed’s move in tightening monetary policy could push the economy into a brink of a recession, Yellen conceded it’s a “risk” that the Biden administration is currently “monitoring,” while falsely blaming the previous administration for putting the economy in “a deep hole.”
“It is a risk when the Fed is tightening monetary policy to address inflation,” Yellen said. “So it’s certainly a risk that we’re monitoring. And we’re seeing some slowdown in growth. But that’s natural because when President Biden took off as the economy was in a deep hole. Output and employment were well short of their normal and potential levels. We experienced largely due to the American Rescue Plan a very rapid growth and jobs came back.”
“Higher food and energy prices are having a negative impact but we’ve got a good strong labor market and I believe it’s possible to maintain that,” Yellen added.
Yellen noted the Biden administration would leave monetary policy alone for the Fed to handle without interference. President Biden has long been supportive of the Federal Reserve’s hawkish move to slow the economy, claiming independence from the Central Bank.
“I believe our goals are very well aligned,” Yellen said. “We want to see a strong labor market and inflation coming down to more normal levels.”
Despite Yellen remaining optimistic over the Fed’s latest forceful move, there has been a pessimistic concern growing among experts and investors that the Central Bank’s aggressive interest rate hikes strategy in its efforts to combat 40-year high inflation could tip the economy into a recession. Among the most loudest critics are coming from progressive Democrats, most notably, Warren who is vocally expressed disdain for Fed Chairman Jerome Powell, arguing that the move will plummet the country into a recession.
“I am very worried the Fed is going to tip this economy into recession,” Warren said in an earlier CNN ‘State of the Union’ interview.
The Federal Reserve is reportedly eyeing a third 75 basis-point interest rate hike in its upcoming FOMC policy meetings on September 20 and 21. Fed watchers believe that Central Bankers think the economy is strong enough to witter interest rates at 4% by the end of the year. Currently, the Fed’s benchmark rate is in a range of 2.25%-2.5%.
Late last month, Powell in a key speech at Jackson Hole Summit gave a clear warning of the “pain” the rate hikes might cause amid a “sustained period of below-trend growth.”
“While higher interest rates, slower growth, and softer labor-market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said. “There are unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
While Yellen is expressing confidence with the Fed in obtaining a soft landing, investment banks otherwise have chimed in with recession predictions, given the severity of inflation and the rate of hiking needed to fully quell high prices. BlackRock, in an analysis released last week, believes that the Fed may not be able to avoid a recession, either be able to bring inflation down to its 2% target.
JPMorgan’s top strategist is warning of the careful balancing act the Federal Reserve is facing with a wobbling U.S. economy being just “one more shock” in putting it officially in recession.Biden AdministrationCNN SOTUFederal ReserveInflationInterest RatesJackson Hole SummitJanet YellenJerome PowellSen. Elizabeth Warren
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