WASHINGTON (AP) – Treasury Secretary Janet Yellen on Sunday said the United States (US) economy is slowing but pointed to healthy hiring as proof that it is not yet in recession.
Yellen spoke on NBC’s Meet the Press just before a slew of economic reports will be released this week that will shed light on an economy currently besieged by rampant inflation and threatened by higher interest rates.
The data will cover sales of new homes, consumer confidence, incomes, spending, inflation, and overall output.
The highest-profile report will likely be on Thursday, when the Commerce Department will release its first estimate of the economy’s output in the April-June quarter.
Some economists forecast it may show a contraction for the second quarter in a row.
The US economy shrank 1.6 per cent in the January-March quarter. Two straight negative readings is considered an informal definition of a recession, though in this case economists think that’s misleading.
Instead, the National Bureau of Economic Research – a non-profit group of economists – defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months”.
Yellen argued that much of the economy remains healthy: Consumer spending is growing, Americans’ finances, on average, are solid, and the economy has added more than 400,000 jobs a month this year, a robust figure.
The unemployment rate is 3.6 per cent, near a half-century low.
“We’ve got a very strong labour market,” Yellen said. “This is not an economy that’s in recession.”
Still, Yellen acknowledged the economy is “in a period of transition in which growth is slowing”, from a historically rapid pace in 2021.
She said that slowdown is “necessary and appropriate”, because “we need to be growing at a steady and sustainable pace”.
Slower growth could help bring down inflation, which at 9.1 per cent is the highest in two generations.
Still, many economists think a recession is on the horizon, with inflation eating away at Americans’ ability to spend and the Federal Reserve rapidly pushing up borrowing costs. Last week, Bank of America’s economists became the latest to forecast a “mild recession” later this year. And Larry Summers, the treasury secretary under President Bill Clinton, said on CNN’s GPS on Sunday that “there’s a very high likelihood of recession”, as the Fed lifts interest rates to combat inflation.
Those higher borrowing costs are intended to reduce consumer spending on homes and cars and slow business borrowing, which can lead to a downturn.
Tomorrow, the Federal Reserve is likely to announce its second 0.75 per cent point increase in its short-term rate in a row, a hefty increase that it hasn’t otherwise implemented since 1994.
That will put the Fed’s benchmark rate in a range of 2.25 per cent to 2.5 per cent, the highest level since 2018. Fed policymakers are expected to keep hiking until its rate reaches about 3.5 per cent, which would be the highest since 2008.
European Central Bank President Christine Lagarde also sought to minimise recession concerns in an news conference last Thursday.
“Under the baseline scenario, there is no recession, neither this year nor next year,” Lagarde said.