Treasury Secretary Janet Yellen says economy is slowing down as U.S. still struggles with inflation


U.S. Treasury Secretary Janet Yellen said on Sunday that the country's economy is expected to slow down as the government controls inflation. She also said that she did not think a recession was inevitable.

In an interview on ABC's "This Week," Yellen said she was still optimistic about the country's economy despite the recent increase in interest rates. However, the former Fed chair noted that the rise in interest rates could trigger a decline in the country's growth.

According to a report released in May, consumer prices were up 8.6% from a year earlier. The goal of the government's rate hike is to bring inflation down to 2%.

According to Yellen, the U.S. economy is expected to slow down as the country's growth rate has been increasing rapidly. She also mentioned that the country's labor market has recovered and that it's natural for the economy to grow steadily.

High inflation rates, high prices

The rising prices were caused by various factors, such as the war between Russia and Ukraine and the lockdowns in China. These disruptions occurred as the country's consumers returned to spending after the worst of the COVID-19 pandemic. According to Yellen, this led to higher fuel and gas demand, which led to a decline in production.

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Yellen said that producers were not prepared to meet the economy's needs due to the high prices. She also highlighted that the producers should increase their supplies in the future.

"I think that producers were partly caught unaware of the strength of the recovery in the economy and weren't ready to meet the needs of the economy. High prices should induce them to increase supplies over time," Yellen said.

Inflation may continue to end of year

In an interview with NBC's "Meet the Press," Lawrence Summers, a former Treasury Secretary, said the country's economic outlook was bleak.

According to Summers, a recession would most likely occur by the end of next year. "The dominant probability would be that by the end of next year, we would be seeing a recession in the American economy," Summers said.

In a paper released earlier this year, Summers noted that since 1955, the U.S. economy has gone into recession when the consumer price index has risen above 4%, and the unemployment rate has been below 5%.

"I think all the precedents point towards a recession, Chuck. There's always a first time for everything, and I don't want ever to make forecasts with certainty," Summers said.

Inevitable recession

A survey by the Wall Street Journal revealed that economists are more likely to predict that the country will experience a recession in the next 12 months. This is up from a 28% probability in April and 18% in January.

According to Greg Daco, a senior economist at EY-Parthenon, the U.S. economy is expected to contract in the coming months due to the high inflation rate and the stock market's decline. He said that the rising interest rates and the weakening housing market would severely affect the country's business investment and hiring.

"We now believe the U.S. economy is headed for a mild recession in the coming months," Daco told the Journal.

"While consumers will continue to spend freely on leisure, travel and hospitality over the summer, a persistently elevated inflation backdrop, surging interest rates and plunging stock prices will erode spending power, severely curtail housing activity and constrain business investment and hiring."