U.S. Treasury Secretary Janet Yellen expressed confidence in the American economy, dismissing the possibility of a recession and predicting that inflation will reach the Federal Reserve’s 2% target by next year.
What Happened: Yellen, in an interview on Monday, stated that she does not see any signs of a U.S. recession. She also expects the Federal Reserve to achieve its 2% inflation target next year, a pace faster than what central bank policymakers have projected, reported Yahoo Finance on Tuesday.
“I do expect inflation to come down, and as we get into next year I believe that inflation will go back to the Fed's 2% target,” Yellen said.
Despite the Fed officials’ recent median projection indicating that the Fed’s preferred measure of inflation would return to 2% in 2026, Yellen believes that inflation will decrease further. She attributes this to the stabilization of rental prices for new apartments in many parts of the country, which she expects will reduce costs as more renters renew their contracts.
Yellen also announced measures to address high housing costs, including a $100 million fund over the next three years to support affordable housing financing.
She declined to speculate on when the Fed might provide relief to the housing market by lowering interest rates, stating that it depends on the data available to policymakers.
Yellen also criticized the tax cuts implemented during the Trump administration, which lowered the corporate rate from 35% to 21%. She believes that this decision added to the deficit and “promised an investment boom which really did not materialize,” contributing to the fiscal problems the country is currently facing.
Why It Matters: Yellen’s comments come amid contrasting views on the U.S. economy’s health. In June, Yellen disagreed with President Biden's stance on inflation, attributing it to supply and demand rather than corporate greed. She stated, “I think that inflation is about supply and demand and clearly a significant part of the inflation we had to burst after the pandemic, during the pandemic reflected supply constraints and stresses on supply chains.”
However, recent data from the U.S. Census indicate a 1.3% year-over-year drop in retail sales volume over the past quarter, following a 4% decrease in the first quarter, hinting at a potential recession. Economist David Rosenberg noted, “The weakness in the consumer can now be considered a ‘trend'… Early signs of a consumer recession finally coming to the fore.”
Additionally, the Economic Cycle Research Institute's Leading Economic Index has been on a downward trend for the past year. Lakshman Achuthan, co-founder of ECRI, warned, “That, while is not a guarantee of a recession, it certainly is an indication that there's a lot of vulnerable to shocks.”
Contrastingly, renowned investor Steve Eisman expressed confidence in the U.S. economy’s stability, dismissing fears of an impending recession. Eisman attributed this to strong market performance driven by investments in artificial intelligence and infrastructure.
Read Next: Nasdaq, S&P 500 On Track For Weak Start: What’s Weighing Down on Futures
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
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