USA: Yellen believes it is possible to curb inflation without hurting employment

“It’s the job of the Fed (…) to remedy the imbalances of supply and demand,” said the US Treasury Secretary.

It is possible to bring down high inflation in the United States, while maintaining the good health of the labor market, judged on Thursday the American Secretary of the Treasury, Janet Yellen, saying she hoped that the American central bank (Fed) “will succeed. “.

“I think a path exists to successfully bring down inflation while maintaining (…) a strong labor market. And I very much hope that the Fed will get there,” said Joe Biden’s Minister of Economy and Finance.

On Wednesday, the Fed proceeded to another sharp increase in its key rate, in order to slow down the economy, and ultimately to fight against inflation. Its chairman, Jerome Powell, warned that the fight against inflation would be painful for the economy.

But the shortage of workers in the US labor market, which leads to higher wages, is one of the sources of inflation, said the minister, citing “probably inflationary pressures coming from the labor market”, and emphasizing that “it is the job of the Fed (…) to address supply and demand imbalances”.

The US Federal Reserve also, on Wednesday after its monetary policy meeting, updated its economic forecasts. It anticipates that the slowdown in activity caused by the rate hikes will lead to a slightly stronger rise in unemployment than it had previously anticipated.

The unemployment rate is expected to reach 3.8% on average in 2022 (3.7% previously expected), then climb to 4.4% in 2023 (from 3.9%). It was 3.7% in August, one of the lowest in 50 years.

But some economists believe that these forecasts are too low. Thus, the former US Treasury Secretary, Larry Summers, warned in a tweet on Wednesday that the unemployment rate would probably have to exceed 5% to see a strong and lasting slowdown in inflation.

Janet Yellen acknowledged that there is “need to ease the pressure of the labor market”, without however “that the unemployment rate (must) increase as much”, she added.

“We can still have a good, solid labor market. Without as much pressure on wages,” she said.

Inflation in the United States stood at 6.3% year on year in July, according to the latest available figure from the PCE index, used by the Fed. It wants to bring inflation back to around 2%.

Another index of inflation exists, the CPI, which is a reference for the indexation of pensions in particular. In August, it reached 8.3% over one year.

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