Treasury Secretary Janet Yellen said Thursday she believes the U.S. economy is making the “soft landing” that she predicted two years ago, when inflation soared after the pandemic.
In a live interview during the Atlantic Festival 2024, journalist Ron Brownstein recalled their interview in 2022, when, he said, “there was a great deal of apprehension about the economy, about the Biden administration’s management of the economy.”
“Well, here we are now, two years later: unemployment 4.2, inflation under 3 percent, Fed finally, cutting interest rates,” he said. “I know Taylor Swift has been in the news a lot lately, so let me ask you: Are we out of the woods?”
Yellen cautioned against overconfidence, since “there are always risks to the economy,” but she said today’s economy is exhibiting key markers of a soft landing, as she outlined them two years ago.
“When we spoke two years ago, what I said was, I believe that there was a path to bring inflation down, in the context of a strong job market, and if the Fed and the administration’s policies could succeed in accomplishing that, we’d call that a soft landing,” Yellen said.
“And I believe that’s exactly what we’re seeing in the economy,” she continued.
The Federal Reserve on Wednesday cut interest rates by 50 basis points, in its first rate reduction after a two-and-a-half-year crusade against inflation.
The new federal funds rate is 4.75-5 percent. The Fed incrementally increased interest rates from near zero in March 2022 to a range of 5.25-5.5 percent last July as it battled rising inflation, which peaked at 9.1 percent in June 2022. While rate hikes fueled recession concerns and layoff fears, the unemployment rate maintained its lowest sub-4 percent streak since the 1960s.
Yellen said she wouldn’t comment on the decision to cut rates by the Federal Reserve, which she previously chaired, but said the decision is “a very positive sign for where the U.S. economy is.”
Yellen said the labor market remains “strong,” despite having cooled significantly. “It’s not as hot as the labor market was a year and a half or two years ago, when firms were utterly struggling to hire back employees that they had laid off during the pandemic, and there had been huge shifts in demand, wages were rising very rapidly.”
Yellen said she believes the U.S. economy can continue down this path, which would be “an excellent outcome.”
“Now wages are going up at a good pace, faster than inflation, so workers are getting ahead in real terms, but what we’re seeing is a normal, healthy labor market,” she added. “We still have positive job growth in the economy, and I believe it’s possible to stay on this course, and this would be an excellent outcome.”