Treasury Secretary Janet Yellen is striking a cautiously optimistic tone about 2023, predicting a sharp cooling in inflation and stressing that a recession is not necessary to bring prices back under control.
“I think by the end of next year you’ll see much lower inflation, if there’s not an unexpected shock,” Yellen told CBS’s “60 Minutes” in an interview that aired Sunday.
Yellen cited falling gas prices — AAA said Monday the national average is down 52 cents a gallon in the past month — falling shipping costs and reduced delivery delays.
“I hope that it will be short-lived,” Yellen said of the current period of high inflation. “We learned a lot from the high inflation we experienced in the 1970s. And we are all aware that it is vitally important that inflation be brought under control and not become endemic to our economy. And we make sure that doesn’t happen.”
Yellen, like many economists and even the Federal Reserve, has previously been overly optimistic about inflation. She admitted earlier this year that she was “wrong” about the inflation trajectory, telling CNN’s Wolf Blitzer in June that she “didn’t – at the time – fully understand” the “big shocks to the economy” that would come from Russia’s war in Ukraine.
The comments come after Friday’s warmer-than-expected wholesale inflation report, which showed producer prices rose in November at the slowest annual pace in 18 months.
The more closely watched consumer inflation report due on Tuesday this week is expected to show a similar cooling in consumer prices.
The Federal Reserve is widely expected to deliver a seventh consecutive interest rate hike on Wednesday, although investors are betting the US central bank will slow the pace of rate hikes from three-quarters to half a point. The Fed’s aggressive rate hikes have driven up borrowing costs – credit card interest rates are at record highs – and heightened fears of a recession.
Yellen admitted a recession is possible in the months ahead – although the former Fed chair emphasized that one is not required to tame inflation.
“There is a risk of a recession,” Yellen said. “But it is certainly not, in my view, something that is necessary to bring down inflation.”
Like other Biden administration officials, Yellen argued that the economy is in the midst of a healthy transition from blockbuster growth to something more sustainable.
“We had a very quick recovery from the pandemic. Economic growth was very high,” Yellen said. “To bring inflation down, and because almost everyone who wants a job has a job, growth has to slow down.”
Yellen said the U.S. economy is at or near full employment, meaning there is “no need” for rapid growth to get people back to work.
The finance minister said she is trying to instill a sense of compassion and urgency in policy-making by stressing to her staff that real people are suffering.
Yellen recalled how in 2009, when millions of people were out of work in the middle of the Great Recession, she reminded her staff at the San Francisco Federal Reserve, where she was president from 2004-2010, that there are real people behind labor market statistics. and economists must worry about their well-being.
“I think I said, ‘They’re damn people,'” Yellen said. “I wanted people who worked for me to take seriously the harm and misery experienced by far too many Americans.”