US Treasury Secretary confident in US’s ability to control inflation

In this post:

  • Treasury Secretary Janet Yellen is increasingly confident in the US’s ability to combat inflation without significant job market repercussions.
  • Yellen dismisses concerns about China’s efforts to boost BRICS’ influence, emphasizing that the G-20 remains the primary platform for global cooperation.
  • Goldman Sachs economists lower the probability of a US recession from 20% to 15%, reflecting encouraging economic indicators.

Treasury Secretary Janet Yellen expressed growing confidence in the US’s ability to curb inflation without causing significant harm to the job market. She cited data indicating a steady slowdown in inflation and an increase in job seekers. Yellen stated that she is “feeling very good about that prediction” and believes the US is on a path that aligns with her expectations of avoiding a recession while still addressing consumer price increases.

Yellen downplays risks from China’s BRICS efforts

During an interview on her way back from the G-20 summit in New Delhi, Yellen downplayed any potential risks from China’s efforts to enhance the influence of the BRICS grouping of major emerging nations. She emphasized that the G-20 remains the primary forum for global cooperation.

While headline inflation has slowed towards 3%, still above the Federal Reserve’s 2% target—there has been no decline in payrolls or GDP. Yellen noted that every measure of inflation is trending downwards, indicating a positive trajectory. She also highlighted that the increase in the US unemployment rate in August wasn’t due to a significant wave of layoffs. The jobless rate reached 3.8% last month, partly due to a rise in the labor force participation rate to its highest level since February 2020, around the onset of the COVID-19 pandemic.

She emphasized the importance of easing the labor market, considering it a positive development. She stated that it’s a clear advantage that this is occurring because more people are actively seeking employment.

The recent economic data serve as a form of validation for Yellen, who has consistently maintained over the past year that she sees a path for inflation to reach the Federal Reserve’s 2% target without a surge in joblessness. Additionally, sustained gains in consumer spending and signs of stabilization in the housing market have led economists to revise or delay their predictions of an impending recession despite an increase in mortgage rates.

Potential of US sliding into recession lowers

Goldman Sachs economists have revised the probability of the US entering a recession from 20% to 15%, reflecting the country’s positive economic signs. However, in contrast, China has been facing disappointing economic data, which has raised doubts about whether it will achieve its 5% growth target for the year.

Yellen reiterated her belief that China’s policymakers still have room to intervene to support the economy if necessary. While China has taken measures to loosen restrictions on the property market, they have not implemented broad stimulus packages for consumers or significant interest rate cuts.

Regarding China’s efforts to expand the BRICS group, Yellen pointed out that the member nations have highly divergent interests. This expansion has brought in six new members, potentially leading to various viewpoints and priorities within the Group.

Yellen emphasized the strong and strengthening alliances that the US has with several of the BRICS-11 countries. She specifically mentioned recent cooperation on biofuels involving Brazil and South Africa. Yellen also highlighted the significance of the G-20’s work on global challenges, including health, food security, and lending, over the past few years.

The United States has been actively engaging with emerging markets, deepening ties with countries like Vietnam, a key hub for consumer electronics. This engagement is notable given Vietnam’s border tensions with China. President Biden’s visit to Vietnam further underscored the importance of these ties.

During an interview, Abby Joseph Cohen, a former chief US strategist at Goldman Sachs, expressed her concerns about the economy. She noted that the likelihood of an economic downturn has increased in recent months. While she clarified that this doesn’t necessarily mean a recession is imminent, she believes the economic environment is not as favorable as it was 18 months ago.

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Ryan Salame
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