Treasury Secretary Janet L. Yellen said on Thursday that she expected the United States economy to slow as the Federal Reserve raised interest rates to tame inflation but that she did not anticipate a recession.
Speaking at The Times’s DealBook D.C. policy forum, Ms. Yellen said that the global economy faced an array of serious threats and that gas prices were unlikely to fall in the near term. However, she said that the U.S. economy remains strong despite rising prices and that a solid labor market and robust household finances should be able to continue to propel consumer spending.
“There’s nothing to suggest a recession is in the works,” Ms. Yellen said.
Ms. Yellen has faced criticism this month after she acknowledged that she was wrong about the path that inflation would take in the past year, when she — along with many other economists — initially described price gains as “transitory.” The Treasury secretary has also faced questions about whether President Biden’s $1.9 trillion stimulus package was responsible for fueling inflation.
Ms. Yellen said on Thursday that she did not regret the scale of the aid, known as the American Rescue Plan, given the dire economic predictions at the time of its passage in March 2021.
“I wouldn’t do it differently,” Ms. Yellen said, noting that forecasters were anticipating high unemployment for an extended period. “I was very supportive of the American Rescue Plan.”
Although Ms. Yellen expressed optimism that the United States would be able to avoid a recession, the economy faces some serious headwinds including the war in Ukraine, higher energy prices and the continuing Covid lockdowns in China. It will be up to the Fed, she added, to achieve a so-called soft landing where it raises borrowing costs enough that it reduces demand and tames price gains without causing a recession.
“It’s an art,” Ms. Yellen said of the Fed’s job.
The Treasury secretary added that she expected economic growth in the United States to be slower than the rapid clip of last year’s rebound but said she did see a path to curbing demand without causing a deep contraction: “We want to transition to stable, strong growth.”
Ms. Yellen dismissed the view of some Democrats that corporate greed is to blame for rising prices, suggesting that she sees it as more of a matter of supply and demand. She also suggested that opening a pathway to more immigration to the United States could help alleviate rising prices by easing the nation’s labor shortage.
“Immigration has been very low,” Ms. Yellen said. “Certainly boosting labor supply would be a way to relieve some of the tightness in the labor market.”
However, Ms. Yellen acknowledged that views about the economy are heavily colored by inflation and gas prices. This week, the national average hit $5 a gallon, and Ms. Yellen did not say whether relief is on the way.
“It’s unlikely that gas prices are going to fall anytime soon,” she said.