there is “a risk” of recession, warns the secretary of the Treasury

Faced with inflation which had reached its highest level in 40 years in June, before slowing down a little in July (8.5%), the central bank is gradually raising its key rates.

There are “a riskof recession in the United States due to the measures taken to slow inflation, which will necessarily weigh on economic activity, but it is possible to escape it, said Sunday September 11 the American Secretary of the Treasury, Janet Yellen .

A recession in the United States is “a risk when the Fed, the US central bank, tightens its monetary policy in the face of inflation“said Joe Biden’s Minister of Economy and Finance, on CNN. “It is therefore obviously a risk that we are monitoringshe added, but we have a strong labor market, and I believe it is possible to keep it that way“.

Faced with inflation which had reached its highest level in 40 years in June, before slowing down a little in July (8.5%), the central bank is gradually raising its key rates in order to slow down economic activity and ease the price pressure.

“Soft landing”

These policy rates set the tone for commercial banks for the interest rates on loans they offer to their retail and business customers. Higher rates therefore mechanically reduce consumption and investment. “Inflation is far too high and it is essential to reduce it“, hammered Janet Yellen.

The Fed is hoping for asoft landing», that is to say bring inflation back to its target of 2%, without plunging the economy into recession, which would cause a surge in unemployment. “I believe there is a way to get there. Longer term, we can’t have a strong labor market without inflation under control“said the Minister.

While the world’s largest economy’s GDP contracted in the first two quarters of 2022, fitting the classic definition of a recession, she again asserted that was not the case. “We are not in a recession. The labor market is exceptionally strong. (…) There are almost two vacancies for every worker looking for a job“, assured Janet Yellen.

The job market remains very tense with a major labor shortage. The unemployment rate, however, rose a little in August, to 3.7%, in particular as the participation rate rose, a sign that many workers left on the side of the road because of Covid, are returning to the market.

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