There is “a risk” of a recession in the United States due to the measures taken to slow inflation, which will necessarily weigh on economic activity, but it is possible to escape it, the American secretary said on Sunday. Treasure, Janet Yellen.
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A recession in the United States is “a risk when the Fed (the American central bank, editor’s note) tightens its monetary policy in the face of inflation”, declared the Minister of Economy and Finance of Joe Biden, on the chain CNN.
“So it’s obviously a risk that we’re monitoring,” she added, but “we have a strong labor market, and I believe it’s possible to keep it that way.”
Faced with inflation which had reached its highest level in 40 years in June, before slowing down a little in July (8.5%), the central bank is gradually raising its key rates in order to slow down economic activity and ease the price pressure.
These key rates set the tone for commercial banks for the interest rates on the loans they offer to their retail and business customers. Higher rates therefore mechanically reduce consumption and investment.
“Inflation is far too high and it is essential to reduce it,” insisted Janet Yellen.
The Fed hopes for a “soft landing”, that is to say bring inflation back to its target of 2%, without plunging the economy into recession, which would cause a surge in unemployment.
“I believe there is a way to get there. (…) In the longer term, we cannot have a solid labor market without inflation under control,” the minister said.
While the world’s largest economy’s GDP contracted in the first two quarters of 2022, fitting the classic definition of a recession, she again asserted that was not the case.
“We are not in a recession. The labor market is exceptionally strong. (…) There are nearly two vacancies for each worker looking for a job,” assured Janet Yellen.
The job market remains very tense with a major labor shortage. The unemployment rate, however, rose a little in August, to 3.7%, in particular as the participation rate rose, a sign that many workers who have been sidelined by COVID are returning to the market.