Zinger Key Points
- The Treasury Secretary said she still does not expect a recession, but the government has fiscal capacity to respond to economic weakness.
- Yellen’s speech comes less than a week before the U.S. Federal Reserve is set to announce its monetary policy.
- Yellen also said the Treasury was studying diminished liquidity in the U.S. Treasury debt market.
U.S. Treasury Secretary Janet Yellen said on Thursday that new GDP data indicates strength in the U.S. economy but also some signs of a healthy slowdown which could have a positive impact on taming high inflation, reported Reuters.
Yellen was speaking to reporters on her trip to Cleveland to tout the Biden administration's economic policies.
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On Recession: The Treasury Secretary said she still does not expect a recession, but the U.S. government possesses the fiscal capacity to respond to economic weakness, if appropriate, according to the report. The U.S. economy grew 2.6% in the third quarter after witnessing contractions earlier this year.
"This is certainly a full employment economy with a hot labor market, which is good, but we want to see growth slow," Yellen said adding that it's part of getting inflation under control.
Yellen’s speech comes less than a week before the U.S. Federal Reserve is set to announce its monetary policy. Market participants have now factored in a less aggressive Federal Reserve, but seem to have retained a 75 basis points rate hike expectation. The SPDR S&P 500 ETF Trust SPY has gained 2.55% over the last one month, while the Vanguard Total Bond Market Index Fund ETF BND has shed over 1.61% in the same period.
"I have said many times I see a path to bringing inflation down while maintaining a strong labor market. And I think this data is consistent with what we would want to see," she said.
The Treasury Secretary also stated, “we need to be careful not to use fiscal policy to exacerbate an inflationary problem.”
“But if there were — which I don't expect — but if there were a deep recession, that was something that called for a response, I think we continue to have enough fiscal space to do so," she said.
On Treasury Market: Yellen also said the Treasury was studying diminished liquidity in the U.S. Treasury debt market and said this was a function of broader market volatility. "We don't see problems," she noted.
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