Janet Yellen, the US Treasury Secretary, has said that new data showing a rise in inflation signals that fighting inflation “is not a straight line” and more work is needed. Speaking to Reuters, Yellen rejected claims that a recession or higher unemployment was required for the Federal Reserve to win its inflation fight.
The US treasury secretary argued that inflation could still be brought down while maintaining a strong labor market. “And I’ve said repeatedly and continue to believe that there is a path to bringing inflation down that would be consistent with maintaining a strong labor market,” said Yellen.
Yellen also said that the data showed it was not going to be a straightforward task to tackle inflation and added that “there’s more work to be done”.
The Federal Reserve’s preferred measure of inflation, the personal consumption expenditures price index, jumped unexpectedly in January, which has called into question whether the Fed remains behind in its inflation fight. Yellen, however, said that inflation has come down over the past year and should continue to do so because housing rental contracts are still adjusting to lower levels compared to their pandemic-era peaks.
Having commented on a new study by three economists which suggested that the Fed would need a recession or higher unemployment to win its inflation fight, the treasury secretary disagreed with the study, joining pushback from Fed officials. She said that although sometimes recessions are necessary to bring inflation down, such as in the 1970s when there was a strong wage-price spiral, she believes that is not the situation now.
The core personal-consumption expenditures price index, which is the US Federal Reserve’s preferred measure of inflation, rose by 4.7% YoY in January 2023, exceeding economists’ expectations and increasing at the fastest monthly pace since last summer. This has raised concerns among investors who are already worried about rising prices. The Fed is worried that inflation may not return to the target rate of 2% as quickly as they had anticipated and may consider larger rate moves if inflation data continues to be worrying.
