WASHINGTON (AP) — Treasury Secretary Janet Yellen said Sunday the U.S. economy was slowing, but stressed healthy hiring as proof that it is not yet in recession.
Yellen spoke on NBC’s “Meet the Press” just ahead of the release this week of a series of economic reports that will shed light on an economy currently beleaguered by galloping 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. economy fell 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,” compared to a historically fast 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 increase of 0.75% its short-term rate in a row, 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 walking until its rate hits around 3.5%, which would be the highest since 2008.
The Fed hikes have torpedoed the housing market, with mortgage rates doubling over the past year to 5.5%. Sales of existing homes have fallen for five consecutive months. On Tuesday, the government is expected to announce that new home sales fell in June.
Fewer home sales also means less spending on items that typically come with buying a new home, such as furniture, appliances, curtains, and kitchen utensils.
Many other countries are also struggling with higher inflation, and slower growth overseas could weaken the US economy. Europe is facing the threat of a recession, with runaway inflation and a central bank which raised interest rates last week for the first time in 11 years.
European Central Bank President Christine Lagarde also sought to play down recession fears at a press conference last Thursday.
“In the base scenario, there is no recession, neither this year nor next year,” Lagarde said. “Is the horizon darkened? Of course it is.