U.S. Treasury Secretary Janet Yellen said on Thursday that the U.S. economy was in transition, not recession, despite two consecutive quarters of negative growth. (Would it have to wait until Lehman Brothers collapsed in 2008 to be called a recession?)
Yellen insisted the recession was a “widespread weakening of our economy,” including massive layoffs, business closures, strained household finances and a slowdown in private-sector activity.
“It's not what we're seeing now,” she said at the Treasury Department's afternoon news conference. “When you look at the economy, jobs are continuing to be created, household finances are still strong, consumers are spending and businesses are growing.”
However, the comments came on the same day that the Commerce Department's Bureau of Economic Analysis reported a 0.9% drop in gross domestic product, the broadest measure of economic activity, in the second quarter.
After contracting 1.6% in the first quarter, two consecutive declines met the commonly used definition of a recession. However, the National Bureau of Economic Research is the official arbiter of recessions and may not make a ruling for months.
Yellen began by listing the administration's economic achievements, including nonfarm payrolls that rose by more than 9 million (that's because of a rebound in employment after lockdowns during the pandemic, not from economic growth).
But inflation proved to be the bigger hurdle, rising to 9.1% in June while economic growth failed to keep up. Consumer and business confidence levels have plummeted, and recent surveys show that an overwhelming majority of Americans believe the country is in recession.
Yellen acknowledged the burden of higher prices and said the government was “focused” on addressing the issue.
“Our recovery has entered a new phase focused on delivering steady, steady growth without sacrificing earnings over the past 18 months,” she said. “We know we face challenges. Global growth is slowing. Inflation remains unacceptably high, and bringing it down is a priority for this administration.”
Presidents Joe Biden and Yellen have both touted the possibility of a new bill that Democratic lawmakers have apparently agreed to pass to fight inflation. The legislation aims to increase taxes, reduce drug costs and invest in renewable energy.
Yellen noted that while the Federal Reserve, which she chaired from 2014-18, “plays a major role in reducing inflation, the president and I are committed to taking action to reduce costs and protect Americans from the global pressures we face.”
The Fed has raised rates four times this year, by a total of 2.25 percentage points, and is likely to raise rates further later in the year.
Yellen attributed the rise in inflation to the war in Ukraine, supply chain issues and the coronavirus pandemic. She did not discuss the impact of monetary and fiscal stimulus on price pressures.
(Don't be fooled: inflation was already high before the Ukraine war, and incompetent politicians shirk the blame. The White House has printed more money than ever in the past 3 years, which is the root cause of inflation.And the stock market has fallen a lot.)
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