Despite a weaker-than-expected first-quarter GDP reading, the US economy is “firing on all cylinders” and inflation is on a path toward a more normal level, US Treasury Secretary Janet Yellen said Thursday in an interview with Reuters.
Yellen on Thursday was interviewed by Reuters’ editor in chief Alessandra Galloni as part of the news organization’s NEXT Newsmakers series.
“The economy is clearly performing very well,” Yellen said. “I certainly don’t see it as overheated. The labor market is the strongest labor market we’ve had in 50 years.”
Earlier on Thursday, the Commerce Department reported that the US economy grew by an annualized rate of 1.6% during the first quarter. The GDP reading (which will be revised twice more in the coming weeks) is the slowest pace of growth since the economy contracted in the second quarter of 2022.
Yellen said the weaker reading was not “concerning,” mentioning that measures of underlying growth were strong in Thursday’s report.
Yellen sees inflation moving lower
Economic growth has remained historically strong in the face of elevated inflation, high interest rates and geopolitical tensions. America’s job market is in a three-plus-year expansion, fueling robust consumer spending.
Inflation in the US slowed sharply last year; however, that progress stalled so far this year as rising gas prices and stubbornly high services and shelter prices served as headwinds. Those hot readings are not signs that inflation is reaccelerating, Yellen said.
Shelter costs, as measured by key inflation indexes, are expected to continue to moderate throughout the year, she said, noting rents have stabilized. Additionally, the labor market is not so hot that wage pressures are a source of inflation, she said.
“I believe the fundamentals here are in line with inflation continuing down back toward normal levels,” Yellen said.
Lower inflation does not need to come at the cost of higher unemployment, she added.
Federal Reserve officials have long cautioned that bringing inflation down would be a a bumpy process, but the first-quarter readings give central bankers all the more reason to bide their time before trimming interest rates.
Fed officials will meet next week to discuss their latest policy moves. They’re widely expected to hold interest rates steady.
Still, elevated inflation is seen as a key issue for the President Joe Biden’s reelection chances.
“I know that Americans are concerned with the high cost of living in an number of different areas, and it’s President Biden’s top priority to address that concern,” she said.
Biden has enacted and proposed legislation to help address some of those concerns, she said, noting efforts to reduce health care costs such as putting a cap on insulin prices, the president’s proposals to invest in making housing more affordable and the incentives in place to fuel clean energy developments.
China production overcapacity ‘isn’t just a US issue’
Internationally, however, developments remain more volatile, with ongoing wars in Ukraine and the Middle East escalating geopolitical tensions. Additionally, the US-China relationship is turbulent.
The US, other Group of Seven members and the European Union are currently discussing how to use nearly $300 billion in frozen Russian assets to help Ukraine. Outright seizure of those assets could be one approach, Yellen said Thursday, as well as utilizing the interest earned on those assets in the form of a loan.
“There are a range of options, and we want to give several options for the leaders to discuss in June,” she said, referring to the upcoming G7 summit in Italy.
In terms of China, Yellen reiterated concerns she expressed earlier this month about the nation’s overproduction of goods in critical industries such as electric vehicles and clean energy.
While Chinese officials have recognized the issue of overcapacity, Yellen said the spillover effects could be negative to the US and beyond.
“This isn’t just a US issue; this is an issue for Europe, for Japan, for emerging markets like India and Mexico,” she said. “We’re not the only country that is concerned by the market being flooded with goods.”
She noted how in the mid-2000s, China’s glut of solar panel supplies drove down prices and devastated the emerging solar energy industry in the US and elsewhere.
While there aren’t any immediate actions such as trade barriers being taken in response, Yellen said she “wouldn’t want to take anything off the table.”
Last week, Biden called on US Trade Representative Katherine Tai to “consider tripling” the existing 7.5% tariff rate on Chinese steel and aluminum through a review of the Section 301 tariff rate, pending the conclusion of a four-year review.
Officials expect the ongoing review to be completed “soon,” and Tai could take action to “(enhance) the effectiveness” of the tariffs based on its findings, a senior official said.
CNN’s Betsy Klein and Michael Williams contributed to this report.
