US Treasury Secretary Janet Yellen said inflation continues to be a problem even as she reiterated her conviction that there is a path for it to come down while maintaining a strong labor market.
(Bloomberg) — US Treasury Secretary Janet Yellen said inflation continues to be a problem even as she reiterated her conviction that there is a path for it to come down while maintaining a strong labor market.
Yellen’s comments come after data on Friday showed the Federal Reserve’s preferred inflation gauges unexpectedly accelerated in January and consumer spending surged after a year-end slump, adding pressure on policymakers to keep ratcheting up interest rates.
“Inflation continues to be a problem,” Yellen told Bloomberg News in an interview in Bengaluru, India, where she’s attending talks of the world’s top finance officials. “The data we’ve seen suggests it’s not yet under control, but it’s come down.”
Yellen signaled her outlook didn’t change after the latest price reading, especially given month-to-month volatility and the fact that inflation expectations remain well-contained.
She stuck to her view that a soft landing continued to be possible due to the strength of the labor market and the absence of the kind of stresses for households or the financial sector that have preceded past downturns.
“I do believe that that’s possible and it’s what I hope the economy will experience and I don’t see any clear signs at this point that that possibility is becoming more remote,” Yellen said.
Strong Start
Recent indicators have shown a strong start for the economy in 2023, with job growth, retail sales and service-sector activity all accelerating in January.
The resilient spending and stubborn inflation suggest the Fed’s path to taming prices and demand will be bumpier and longer than data for late 2022 had previously indicated.
Friday’s figures, which showed the personal consumption expenditures price index rose 5.4% from a year earlier in January, underscore the risks of persistently high inflation. Stocks fell on Wall Street and bond yields rose Friday.
Resilient consumer spending paired with the exceptional strength of the labor market will make it more difficult for the Fed to get inflation to its 2% goal.
“Probably the supply-demand imbalances in the labor market need to diminish somewhat,” Yellen said.
Yellen’s remarks come on the back of two days of meetings of the Group of 20 finance ministers and central bank chiefs in Bengaluru, formerly known as Bangalore, where she sounded more positive about the state of the world economy than a few months ago.
She said ending the war in Ukraine is the most important thing for the global economy and warned such risks could also affect the outlook at home.
“Some of those same global forces apply to the US, and food, energy prices, impacts of the war,” she said. “But also we’re in the phase of tightening monetary policy to address inflation.”
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