US Treasury Secretary Janet Yellen said on Thursday that she believes the US economy does not need further significant tightening of monetary policy to eliminate inflation expectations, and that employment is strong, with the possibility of achieving a “soft landing.”
In an interview, Yellen stated that in the past, the Federal Reserve sometimes had to tighten monetary policy significantly to prevent inflation from becoming deeply rooted in the economy and leading to a recession.
“We don’t need that now,” Yellen said. “I think the current signs are very good. We will achieve a soft landing, with unemployment stabilizing more or less and economic growth slowing down to a sustainable level. I think this is where we stand.”
As of October, the unemployment rate has risen from 3.4% in April to 3.9%. According to economic research analysis, such increases of this magnitude in the United States usually indicate that unemployment rates will rise more severely. Newly released data on Thursday also showed cooling consumer spending and inflation in recent weeks, providing fresh evidence of ongoing weakness in the labor market.
The data shows that October’s year-on-year increase in PCE (Personal Consumption Expenditures) was 3% (expected 3%), continuing its steady decline. At the same time, core PCE annual rate excluding food and energy prices rounded off at 3.5% (expected 3.5%). Both figures represent their lowest levels since April 2021.
Yellen said, “Inflation has now declined significantly,” with prices for certain goods like eggs returning to pre-pandemic levels.
“Now wage growth is really translating into more real income,” she said. “So I think Americans will gradually see things improving.”
Yellen emphasized her belief that the Federal Reserve will not need as much force as it did during previous episodes of runaway inflation to curb rising prices.
“The recessions you mentioned were situations where the Fed used contractionary policies like what we have now to bring down inflation, but at that time the Fed believed it was necessary to tighten to a degree that would push the economy into a recession. It may have been necessary then to reduce inflation and entrenched inflation expectations, but we don’t need that now,” she said.