Janet Yellen Sees Inflation Normalizing This Year But Doesn't Take Eye Off China's Industrial 'Overcapacity'

U.S. Treasury Secretary, Janet Yellen, expressed confidence in the U.S. economy, predicting inflation to return to normal levels by 2024. She also discussed potential strategies to counter threats from China’s excess industrial capacity.

What Happened: In an interview on Thursday, Yellen stated that the U.S. economic growth might be stronger than the weaker-than-expected data on first-quarter output suggests, Reuters reported. She also mentioned that the Biden administration is keeping all options open to respond to threats from China’s excess industrial capacity.

Yellen downplayed the recent surge in inflation, stating that it does not indicate a need for unemployment to increase or other areas of the economy to cool down.

“The U.S. economy continues to perform very, very well,” she said.

“The fundamentals here are in line with inflation continuing back down to normal levels.”

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On the topic of China’s overcapacity, Yellen stated that no option was “off the table” for dealing with this threat to the U.S. economy. She emphasized that it is crucial for China to recognize the concern and begin to act to address it.

Why It Matters: The U.S. economy’s performance and inflation rates have significant implications on consumer spending, investment spending, and overall economic health.

The U.S. economy grew at a slower pace than expected in the first quarter of the year, with an annualized growth rate of 1.6%. This slowdown was accompanied by an increase in price pressures, indicating a potential stagflation scenario.

Yellen’s concerns about China’s industrial overcapacity are not new. She earlier expressed worry about Chinese industrial policies leading to a flood of cheap clean-energy product exports, potentially wiping out important US industries.

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Photo by Dustin Blitchok