Treasury Secretary Janet Yellen is striking a cautiously optimistic tone about 2023, predicting a major inflation cooldown and stressing that a recession isn’t required to get prices back under control.
“I believe by the end of next year you will see much lower inflation, if there’s not an unanticipated shock,” Yellen told CBS’s “60 Minutes” in an interview that aired on Sunday.
Yellen cited plunging gas prices — AAA said Monday the national average is down by 52 cents per gallon in the past month — tumbling shipping costs and shortening delivery lags.
“I hope that it will be short-lived,” Yellen said of the current period of high inflation. “We learned a lot of lessons from the high inflation we experienced in the 1970s. And we’re all aware that it’s critically important that inflation be brought under control and not become endemic to our economy. And we’re making sure that won’t happen.”
Yellen, like many economists and even the Federal Reserve, has previously been overly optimistic about inflation. She admitted earlier this year that she was “wrong” about the path of inflation, telling CNN’s Wolf Blitzer in June that she “didn’t — at the time — fully understand” the “large shocks to the economy” that would come from Russia’s war in Ukraine.
The comments come after Friday’s hotter-than-expected wholesale inflation report, which showed producer prices increased in November at the slowest annual pace in 18 months.
The more closely watched consumer inflation report due out on Tuesday this week is expected to show a similar cooldown of consumer prices.
The Federal Reserve is widely expected to deliver a seventh-straight interest rate hike on Wednesday, though investors are betting the US central bank will slow the pace of rate increases from three-quarters of a point to half a point. The Fed’s aggressive rate hikes have driven up borrowing costs — credit card rates are at record highs — and raised fears of a recession.
Yellen conceded a recession is possible in the months ahead — though the former Fed chair emphasized that one isn’t required to tame inflation.
“There’s a risk of a recession,” Yellen said. “But it certainly isn’t, in my view, something that is necessary to bring inflation down.”
Like other Biden administration officials, Yellen argued the economy is in the midst of a healthy transition from blockbuster growth to something more sustainable.
“We had a very rapid recovery from the pandemic. Economic growth was very high,” Yellen said. “To bring inflation down and because almost anyone who wants a job has a job, growth has to slow.”
Yellen said the US economy is at or near full employment, meaning it’s “not necessary” for rapid growth to get people back to work.
The Treasury secretary said she tries to instill a sense of compassion and urgency into policymaking by stressing to her staff that real people are suffering.
Yellen recalled how in 2009 when millions of people were out of work in the middle of the Great Recession, she reminded her staff at the San Francisco Federal Reserve, where she was president from 2004-2010, that there are real people behind labor market statistics and economists need to worry about their wellbeing.
“I think I said, ‘They’re f***people,’” Yellen said. “I wanted people that worked for me to take seriously the harm and misery that was being experienced by all too many Americans.”