Treasury Secretary Janet Yellen told Yahoo Finance there is “no basis” for the U.S. to fall into a recession, saying she expects the Federal Reserve to hit its 2% inflation target next year, but the pace is uncertain. is faster than central bank policymakers expected.
“I expect inflation to decline, and I believe that by the start of next year, inflation will return to the Fed’s 2% target,” he said in an exclusive national interview on Monday.
Treasury Secretary Janet Yellen testified in Washington earlier this month. (AP Photo/Jacqueline Martin, File) (ASSOCIATED PRESS)
Last week, Fed officials released their median forecast showing the Fed’s recommended inflation measure returning to 2% in 2026. Fed officials also signaled they would cut interest rates only once this year because inflation is taking longer to fall than expected.
The main reason Yellen expects inflation to slow further has to do with rising shelter costs even as other prices have eased. He said rental prices for new apartments are stable in many parts of the country, and as more renters renew their contracts, costs will start to fall.
“As a result, housing cost increases have been contained beyond normal levels,” she said. “I’m pretty confident that that will come down over the next year and that inflation will continue to come down.”
Yellen on Monday announced several measures to help with high housing costs, including creating $100 million over the next three years through a new fund to support affordable housing financing.
U.S. home prices hit a record high in May, with the median price of a previously owned home in the U.S. rising 5.8% from a year ago to $419,300, according to the National Association of Realtors.
“I don’t want to say there’s a silver bullet” to the housing affordability problem, Yellen said. But “we want to use every tool we have.”
He declined to say whether he thought the Fed could provide some relief to the housing market by lowering interest rates, saying it all depends on what the data shows policymakers.
A for sale sign is posted in front of a home in Sacramento, Calif. (AP Photo/Rich Pedroncelli, File) (ASSOCIATED PRESS)
But he said the Fed is well aware of the risks of waiting too long. Interest rates are currently at a 23-year high and have remained there since July last year.
“They certainly don’t want to cause a recession when they don’t need to, so that’s their balancing act,” she said.
Yellen said she didn’t think there would be a deep recession, saying, “I don’t see any real basis for the prospect of a recession,” adding, “I think our economy is good and in good shape.”
He criticized the tax cuts passed under President Donald Trump’s administration that cut the corporate tax rate from 35% to 21%, saying the decision had increased the budget deficit and “promised an investment boom that never materialized.” There wasn’t,” he said.
story continues
It’s responsible for “a lot of the problems we’re facing right now in terms of our fiscal trajectory” and “it would be concerning to me to leave all that alone.”
The Congressional Budget Office announced last week that it expects the federal budget deficit to reach an estimated $1.9 trillion in fiscal year 2024, higher than the $1.5 trillion estimate it released just four months ago.
Yellen said President Biden’s 2025 budget proposes an additional $3 trillion in deficit reductions over the next 10 years, enough to keep the debt-to-GDP ratio “around current levels.” , he said this was 100%. .
He said interest payments on government bonds are at “historically normal levels” even though interest rates are high.
If things continue as they are while the U.S. works to reduce its budget deficit, “I think we’ll be on a fiscally sustainable trajectory.”
For the latest stock market news and in-depth analysis of price-moving events, click here
Read the latest financial and business news from Yahoo Finance
