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Janet Yellen admits recession looms over US economy

Treasury Secretary Janet Yellen admits recession looms over US economy

US Treasury Secretary Janet Yellen at the House Financial Services Committee session. (AP)

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US Treasury Secretary Janet Yellen revealed that the US faces a recession risk due to its battle against inflation

can slow down the country's economy.

But Yellen also added that a serious economic downturn could still be avoided.

An American recession "is a risk when the Fed tightens monetary policy to tackle inflation", Yellen said, quoted by Channel News Asia, Monday (12/9/2022).

"So that's certainly a risk we're monitoring," he said, adding that the US has a strong labor market that can be sustained.

Faced with a spike in inflation, which hit a 40-year high in June 2022 at 9.1 percent, the Fed is gradually raising interest rates

primarily to reduce pressure on consumer prices, and hope the move does not depress the US economy.

Commercial banks use the Fed's prime interest rate to set the terms of the interest rates they offer to their individual and corporate clients.

Higher tariffs reduce consumption and investment.

"Inflation is too high, and it's important for us to bring it down," Yellen said.

The Fed is also trying to target inflation back to 2 percent - without sparking a recession, a move that could send unemployment soaring.

"I believe there is a way to achieve that," Yellen explained. "In the long run, we can't have a strong labor market without inflation under control,"

he said.

"We are not in a recession. The labor market is very strong ... There are almost two job openings for every worker looking for work," he stressed.

Economists predict the Federal Reserve will find it difficult to tame inflation without protecting the US economy from the brink of recession.

US recession predictions were revealed in a survey conducted by the largest international economist association, the National Association of Business Economics (NABE).

72 percent of economists surveyed by NABE see the next US recession in the middle of next year,

if not started.

The findings include nearly one in five economists (19 percent) who say the US economy is already in recession, as determined by the research organization

American private, NBER.

Meanwhile, another 20 percent of economists do not expect a recession to occur before the second half of next year.

"The survey results reflect the many differing opinions among the panelists," NABE President David Altig said in a statement.

"This in itself indicates there is less clarity than usual about the prospects," he said.

The NABE survey, conducted between August 1 and August 9, featured responses from the 198 members of the economists' association.

Last month, Fed Chair Jerome Powell stated at a news conference that there are still ways to control inflation without triggering a downturn.

However, even Powell admits that the road is getting narrower as the Fed is forced to use drastic rate hikes to lower inflation.

Nearly three in four economic forecasters, or 73 percent in the NABE survey, said they were not at all sure or not too sure that the Fed

could bring inflation back to its 2 percent target without causing a recession in the next two years.

Only 13 percent of economists surveyed by NABE said they believe or strongly believe the Fed can make the move.

The United States economy contracted in the second quarter of 2022. US gross domestic product fell 0.9 percent in the second quarter of 2022 year-on-year.

This figure follows a 1.6 percent decline in the first quarter and is lower than the Dow Jones forecast

for a 0.3 percent increase.

It is known that, officially, the National Bureau of Economic Research (NBER) is the institution that officially declares a recession, which usually occurs after months of

research and debate; however the traditional definition is when the economy contracts for two consecutive quarters.

also read the impact of the US economy on other countries.. click here

This decline in GDP stemmed from a variety of factors, including reduced inventories, a decline in residential and non-residential investment, and government spending

at the federal, state and local levels.

On the other hand, despite GDP showing a decline for two consecutive quarters, US Treasury Secretary Janet Yellen said her country's economy was in a state of decline.

in a state of transition, not a recession.

But Yellen said the US was seeing broad economic weakness that included massive layoffs, business closures, strains in household finances.

and a slowdown in private sector activity.

"(Recession) is not what we see now," he told a news conference.

"When you look at the economy, job creation continues, household finances remain strong, consumer spending and businesses grow," he said.

"We have entered a new phase in our recovery focused on achieving steady growth without sacrificing gains from the last 18 months,"

Yellen continued.

"We know there are challenges ahead of us. Growth is slowing globally. Inflation remains very high, and is a top priority for governments

This is to bring it down," he added.