In separate remarks on Thursday, U.S. Treasury Secretary Janet Yellen and former Federal Reserve Chairman Ben Bernanke both said they believe the U.S. will likely be able to avoid a recession.
“I’ve long believed that there is a path to a soft landing, that it’s possible to keep inflation down while maintaining a strong labor market, and to me, the data shows that’s happened,” Yellen said in an interview on CNBC.
Speaking at a virtual event hosted by Fidelity Investments, Chairman Bernanke said the Fed had constructed a “soft landing scenario, the best-case scenario possible, where employment gets back to normal, inflation gets back to normal, interest rates get back to normal.”
But Bernanke also warned of the risk that the unemployment rate will not stabilize and will start to rise.
“That could happen if the economy starts to slow down, but that remains to be seen,” he said. “But if people start to lose confidence or even depend on the policies of the new administration, that’s certainly a possibility.”
In such a case, the Fed “will have to respond,” he added.
Janet Yellen (right) talks with Ben Bernanke (second from left) in 2017. (Photo by Alex Wong/Getty Images) (Alex Wong via Getty Images)
Yellen noted that while the unemployment rate is still historically low, it is rising, the job market is cooling and inflation has fallen significantly.
She noted that the “final stretch” of inflation is slowing as home prices are slowing to fall, and she believes housing costs will fall further as market rents fall.
“With the Fed supporting continued strength in the labor market and inflation now significantly lower, we expect this to become the norm,” Yellen said.
Yellen and Bernanke preceded Jerome Powell as Fed chairs, with Yellen serving from 2014 to 2018 and Bernanke from 2006 to 2014. Yellen became Treasury secretary in 2021.
Their comments came as the latest data on economic growth showed the latest estimate for the U.S. economy’s second-quarter gross domestic product grew at an annualized rate of 3 percent.
This third estimate confirmed that economic growth in the second quarter exceeded the 1.4% growth in the first quarter.
Meanwhile, unemployment claims data for the week ending September 21 indicates that the number of people filing for unemployment benefits is declining. The Labor Department reported that jobless claims fell to 218,000, below Wall Street expectations of 223,000, the lowest level since mid-May.
The Federal Reserve decided last week to cut interest rates by 50 basis points, its first easing since 2020.
Bernanke said the Fed could cut interest rates another 50 to 75 basis points this year, hinting at a larger 50 basis point cut at one of its remaining meetings this year.
The story continues
The median forecast among current Fed officials is for two more rate cuts of 25 basis points each.
He sees another 100 basis points of cuts next year, in line with officials’ median forecast, which he said would bring the Fed’s federal funds rate above 3%, closer to what the central bank considers neutral — a benchmark interest rate that neither spurs nor slows economic growth.
“In some sense, that’s the goal,” Mr. Bernanke said. “It remains to be seen whether they’ll get there, or whether new information or new shocks will throw them off track. But as this process continues, I think they’re hoping to get there.”
For in-depth analysis of the latest stock market news and events that are moving stock prices, click here.
Read the latest financial and business news from Yahoo Finance
