Yellen downplays US recession risk as economic reports loom

WASHINGTON — Treasury Secretary Janet Yellen said Sunday that the U.S. economy was slowing, but pointed to healthy hiring as proof it was not yet in a recession.

Yellen spoke on NBC’s “Meet the Press” just before a series of economic reports are released this week that will shed light on an economy currently beleaguered by runaway inflation and threatened by higher interest rates. The data will cover new home sales, consumer confidence, income, spending, inflation and overall production.

The most high-profile report will likely be Thursday, when the Commerce Department releases its first estimate of economic output in the April-June quarter. Some economists forecast that it could post a contraction for the second consecutive quarter. The economy shrank 1.6% in the January-March quarter. Two consecutive negative readings are considered an informal definition of a recession, although in this case economists believe it is misleading.

Instead, the National Bureau of Economic Research – a nonprofit group of economists – defines a recession as “a significant decline in economic activity that spreads throughout the economy and lasts longer than some months”.

Yellen argued that much of the economy remains healthy: Consumer spending is rising, Americans’ finances are strong on average, 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 in recession.”

Still, Yellen acknowledged that the economy is “in a transition period in which growth is slowing”, after a historically rapid pace in 2021.

She said the slowdown is “necessary and appropriate” because “we need to grow at a steady and sustainable pace.”

A slowdown in growth could help lower inflation, which at 9.1% is the highest in two generations.

Yet many economists believe a recession is on the horizon, inflation is eating away at Americans’ ability to spend, and the Federal Reserve is rapidly driving up borrowing costs. Last week, economists at Bank of America became the latest to forecast a “mild recession” later this year.

And Larry Summers, Treasury Secretary under President Bill Clinton, told CNN’s “GPS” on Sunday that “there is a very high likelihood of a recession” as the Fed hikes interest rates to fight back. against inflation. These higher borrowing costs are aimed at reducing consumer spending on homes and cars and slowing business borrowing, which may lead to a slowdown.

On Wednesday, the Federal Reserve is expected to announce its second straight 0.75% increase in its short-term rate, a big increase it hasn’t otherwise implemented since 1994. This 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.

Fed hikes torpedoed the housing market, with mortgage rates doubling over the past year to 5.5%. Sales of existing homes have fallen for five straight months. On Tuesday, the government is expected to announce that new home sales fell in June.