Treasury Secretary Janet Yellen reportedly said the odds of the U.S. tipping into a recession has come down and suggested a slowdown in consumer spending may be required to conclude the mission of reining-in inflation.
Speaking about the possibilities of recession, Yellen said, "My odds of it, if anything, have gone down - because look at the resilience of the labor market, and inflation is coming down," according to a Bloomberg report. "I'm not going to say it's not a risk, because the Fed is tightening policy," she added.
"We probably need to see some slowdown in spending in order to get inflation" under control, Yellen said referring to consumption. She noted that core inflation, which strips out food and energy components, is still high. The Treasury Secretary's comments come as May Consumer Price Index (CPI) rose 4% on an annual basis, the lowest in two years. Core CPI, which strips out energy and food, rose 0.4% in May.
"Inflation has really come down a lot - and there's more in the pipeline," Yellen estimated, partly owing to an anticipated adjustment in the housing market, according to the report.
Fears about a potential recession have resurfaced lately especially after market participants began weighing the possibilities of extended rate hikes following the Bank of England hiking rates by 50 basis points. The U.K. witnessed a higher-than-expected inflation print in May.
On the home front, Federal Reserve Chair Jerome Powell reiterated the central bank's dedication to bringing inflation down to the 2% goal, during his Wednesday testimony before the House Financial Services Committee. He also stated that the Fed does not see rate cuts happening any time soon, during his testimony before the Senate Banking Committee.
Inflation Target: Speaking on the argument of changing the Fed's inflation target, Yellen noted it is not the appropriate time for such a debate. "We could have lovely debate for what the inflation target would be," Yellen said. "But this is not the time for that debate."
Experts like Allianz chief economic adviser and noted economist Mohamed El-Erian have argued that the central bank's inflation target should be updated. 'We are now living in a world of supply constraints and if we were to formulate a new inflation target, it will be higher than 2% - it will be more like 3%,' El-Erian had said. Powell has rejected the idea of considering a change to the 2% target, according to the report.