Amid threats of a US recession, the country’s Treasury Secretary Janet Yellen has said that though the economy may slow down in the coming months, “a recession is not inevitable”.
Her optimism is in stark contrast to economists’ fears of a recession fuelled by rising inflation and Russian invasion of Ukraine.
Ms Yellen said that overall consumer spending in the US remains strong, while noting that spending patterns are changing, given the impact of rising food and energy prices, an AP report quoted her as saying.
She said household savings during the Coronavirus pandemic will help sustain spending.
The national saving rate has fallen to about 6 per cent, below pre-pandemic levels, after reaching 16.6 per cen in 2020, the highest on record dating to 1948, and 12.7 per cent in 2021, AP reported.
“I expect the economy to slow,” Ms Yellen said. “It’s been growing at a very rapid rate and the economy has recovered and we have achieved full employment. We expect a transition to steady and stable growth, but I don’t think a recession is at all inevitable.”
Ms Yellen echoed US President Joe Biden’s optimism in the face of economic headwinds.
Mr Biden in an interview with AP last week insisted that a recession is not inevitable and made the case that US is “in a stronger position than any nation in the world to overcome this inflation.
The Federal Reserve last Wednesday approved its largest interest rate increase in more than a quarter-century to stem a surge in inflation. The move raised the target federal funds rate by three-quarters of a percentage point to a range of between 1.5 per cent and 1.75 per cent.
The tightening of monetary policy was accompanied by a downgrade to the Fed’s economic outlook, with the economy now seen slowing to a below-trend 1.7 per cent rate of growth this year, unemployment rising to 3.7 per cent by the end of this year and continuing to rise to 4.1 per cent through 2024.