Economy

Janet Yellen says high inflation in the US is “locked in” for the rest of the year

FILE PHOTO: People drive their cars near Exxon and BP gas stations at the exit of the Holland Tunnel during the start of the Memorial Day weekend, under rising gas prices and record inflation, in Newport, New Jersey, U.S., May 27, 2022. REUTERS/Eduardo Munoz

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US Treasury Secretary Janet Yellen, speaking to ABC’s “This Week” on Sunday, said that “unacceptably high” inflation is “locked in” for the rest of the year, especially after it accelerated to a four-decade high of 8.6% in May. According to Yellen, the reason for this high inflation is a combination of disrupted energy supply because of the war in Ukraine and a lack of goods coming from China, which has been dealing with COVID lockdowns. Yellen also added that “these factors are unlikely to diminish immediately.”

But, Yellen also said that while she expects the economy to slow, she doesn’t believe a recession is “inevitable.” She pointed out that the US labor market is at its strongest in the post-war period and that inflation should slow down over the next few months.

Key comments:

“We’ve had high inflation so far this year, and that locks in higher inflation for the rest of the year,” Yellen said Sunday. “I expect the economy to slow, but I don’t think a recession is at all inevitable.”

“It’s been growing at a very rapid rate, as the economy, as the labor market, has recovered and we have reached full employment,” said Yellen. “It’s natural now that we expect a transition to steady and stable growth, but I don’t think a recession is at all inevitable.”

“I’m not predicting a recession,” Cleveland Fed President Loretta Mester said Sunday, adding that it will take a “couple of years” to get back to the Fed’s ideal 2% rate. “The recession risks are going up, partly because monetary policy could have pivoted a little earlier than it did. We’re doing that now by moving interest rates up but, of course, there’s a lot of other things going on as well.”