“I don’t see the basis” for a recession

Treasury Secretary Janet Yellen told Yahoo Finance that she “doesn’t see the basis” for a US recession and that she expects the Federal Reserve to reach its 2% inflation target next year – a faster pace than as predicted by central bank policy makers.

“I expect inflation to come down and going into next year I believe inflation will return to the Fed’s 2% target,” she said in an exclusive national interview Monday.

Fed officials last week released a median projection showing the Fed’s preferred measure of inflation would return to 2% in 2026. Fed officials also signaled just one rate cut this year as it takes longer than expected for reduce inflation.

A big reason Yellen expects inflation to cool further has to do with housing costs, which have been hot even as other prices ease. New apartment rents have stabilized in many parts of the country, she said, and that will start to bring down costs as more tenants renew their leases.

“This has kept housing cost increases above normal levels,” she said. “I feel very confident that this is something that will subside over the next year and continue to move inflation down.”

Yellen on Monday announced several measures designed to help with high housing costs, including $100 million through a new fund over the next three years to support affordable housing financing.

U.S. home prices hit a record high in May as the median price of a previously owned U.S. home rose 5.8% from a year earlier to $419,300, according to the National Association of Realtors.

“I don’t want to say there’s a silver bullet” to the issue of housing affordability, Yellen said. But “we want to use every tool we have”.

She declined to say when she thought the Fed might provide some relief to the housing market by cutting interest rates, saying it all depends on what the data tells policymakers.

But she said the Fed is aware of the dangers of waiting too long. Rates are currently at a 23-year high and have been at that level since last July.

“They certainly don’t want to cause a recession when it’s unnecessary, and that’s the balancing act they have,” she said.

Yellen doesn’t see a severe downturn happening, noting that “I don’t see the basis for a recession in the offing” and that “I think we have a pretty strong economy.”

She was critical of the tax cuts passed during the Donald Trump administration that lowered the corporate rate from 35% to 21%, saying the decision added to the deficit and “promised an investment boom that really didn’t materialize.”

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She was responsible for “many of the problems we face now with our fiscal trajectory” and “that would bother me to leave all of this in place.”

The Congressional Budget Office said last week that the federal budget deficit will reach about $1.9 trillion in fiscal year 2024, up from an estimate of $1.5 trillion released just four months ago.

Yellen said President Biden’s 2025 budget proposed an additional $3 trillion in debt reduction over the next 10 years, and that would be enough to keep the debt-to-GDP ratio “at roughly its current level.” – which she said was 100%. .

Interest payments on the national debt, she said, are at “normal historical levels” even with high interest rates.

If things stay that way while the US engages in deficit reduction, “I think we’ll be on a steady fiscal course.”

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