Treasury Secretary Janet Yellen said on Sunday that the US economy is slowing, but pointed to healthy hiring as proof that it is not yet in a recession.
Yellen spoke at “Meet the Press” of NBC just before a series of economic reports are released this week that will shed light on an economy currently beset by runaway inflation and threatened by higher interest rates. The data will cover new home sales, consumer confidence, income, spending, inflation and overall output.
The most high-profile report is likely to be on Thursday, when the Commerce Department releases its first estimate of economic output in the April-June quarter. Some economists forecast that it may show a contraction for the second quarter in a row. The economy contracted 1.6% in the January-March quarter. Two direct negative readings are considered an informal definition of a recession, although in this case economists believe that is misleading.
Instead, the National Bureau of Economic Research, a nonprofit economists group, defines a recession as “a significant decline in economic activity that spreads throughout the economy and lasts more than a few months.”
Yellen argued that much of the economy remains healthy: consumer spending is growing, Americans’ finances, on average, are strong, and the economy has added more than 400,000 jobs a month this year, a solid number. The unemployment rate is 3.6%, near a half-century low.
“We have a very strong job market,” Yellen said. “This is not an economy that is in a recession.”
Still, Yellen acknowledged that the economy is “in a transition period where growth is slowing” from a historically fast pace in 2021.
He said the slowdown is “necessary and appropriate” because “we need to grow at a steady and sustainable pace.”
Slower growth could help reduce inflation, which is the highest in two generations at 9.1%.
Still, many economists believe a recession is looming, with inflation eating into Americans’ spending power and the Federal Reserve rapidly raising borrowing costs. Last week, economists at the Bank of America they became the latest to forecast a “mild recession” later this year.
And Larry Summers, Treasury Secretary under President Bill Clinton, said Sunday on the show “GPS” of that “there is a very high probability of a recession” as the Fed raises interest rates to combat inflation. Those higher borrowing costs are meant to reduce consumer spending on homes and cars and delay business loans, which can lead to a recession.
On Wednesday, the Fed is likely to announce its second consecutive 0.75% hike in its short-term rate, a sharp hike it hasn’t implemented since 1994. That will put the Fed’s benchmark rate in a range of 2.25% to 2.5%, the highest level since 2018. Fed policymakers are expected to keep rising until its rate hits around 3.5%, which would be the highest since 2008.
[Con información de The Associated Press]
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