On Thursday (September 19), Treasury Secretary Janet Yellen expressed her belief that the US economy is achieving the “soft landing” she predicted two years ago, following a surge in inflation after the pandemic.
During a live interview at the 2024 Atlantic Festival (September 19-20), journalist Ron Brownstein recalled the situation in 2022, saying, “Back then, people were very worried about the economy and the economic management of the Biden administration.”
He went on to say, “Two years later, we are facing the current situation: the unemployment rate has dropped to 4.2%, inflation is below 3%, and the Federal Reserve has finally cut interest rates. I know Taylor Swift has been in the news a lot recently, so I want to ask everyone: have we come out of the crisis?”
Yellen cautioned against being overly confident, stating that “there are always risks in the economy,” but she noted that the current economy is showing key features of a soft landing, as outlined by her two years ago.
Yellen said, “Two years ago, I said during our conversation that I believed there was a way to reduce inflation in the background of a strong job market, and if the Fed and government policies could successfully achieve this goal, we could call it a soft landing.”
She continued, “I believe what we are seeing in the economy now is just that.”
The Federal Reserve cut interest rates by 50 basis points on Wednesday, marking the first rate cut by the Biden administration after two and a half years of battling inflation.
The new federal funds rate is set at 4.75%-5%. The Fed gradually raised rates from near zero in March 2022 to 5.25%-5.5% in July of last year as part of addressing rising inflation, which peaked at 9.1% in June 2022. Despite concerns about interest rate hikes exacerbating worries about economic recession and job cuts, the unemployment rate remains at its lowest level since the 1960s, below 4%.
Yellen stated that she would not comment on the interest rate cut decision made by the Federal Reserve when she was chair, but she noted that the decision was “a very positive signal for the current state of the US economy.”
She mentioned that while the labor market has cooled off significantly, it is still “strong.” Yellen explained, “The labor market is not as hot as it was a year and a half or two years ago when businesses struggled to rehire employees laid off during the pandemic, demand has undergone significant changes, and wages have risen rapidly.”
Yellen believes that the US economy can continue to develop along this path and will achieve an “excellent outcome.” She added, “Wages are rising quickly now, outpacing the inflation rate, so workers’ real incomes are also increasing, but what we see is a normal, healthy labor market. Our economy continues to maintain positive job growth, and I believe we can sustain this momentum, which will be a good outcome.”
The sudden move by the Fed will undoubtedly have implications for the 2024 presidential election, with the reactions of the two party presidential candidates differing significantly.
Former President Trump believes that the significant rate cut by the Fed indicates that the US economy is in trouble. During a stop at a “Bitcoin-themed” bar named PubKey in New York City on Wednesday, he commented, “I think if they’re not playing political games, cutting rates so drastically indicates the economy is really bad… either the economy is really bad, or they are playing politics, one of the two.”
Vice President Harris stated in a statement on Wednesday, “For Americans struggling with high prices, this is welcome news, but my focus is on continuing to lower prices.” She indicated, “I know for many middle-class and working families, prices are still too high, and my top priority upon assuming the presidency will be to reduce the costs of everyday needs such as healthcare, housing, and groceries.”
When asked about the potential political impact of the Fed cutting interest rates so close to election day, White House Press Secretary Karine Jean-Pierre emphasized that the Biden administration has always been “very clear and respectful of the Fed’s independence.”
She added, “Unlike previous administrations, I think we have been very firm in this regard and have consistently made it clear.”