Yellen: US economy strong, not overheated

CNN
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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.”

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.

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 downward toward a normal level,” Yellen said.

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.

Internationally, however, developments remain more volatile, with ongoing wars in Ukraine and the Middle East escalating geopolitical tensions. Additionally, the US-China relationship has grown increasingly turbulent.

Last week, President Joe 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.

This story is developing and will be updated.