On Friday, Treasury Secretary Janet Yellen announced that the United States economy had successfully achieved a long-awaited soft landing, a historically unusual event in which high inflation is controlled without significantly harming the labor market.
“What we are witnessing now, I believe can be described as a smooth landing, and my hope is that it continues,” Yellen said in an interview with CNN on Friday.
The government figures released early on Friday showed that the increases in employment and wages in December exceeded expectations, with a rise of 216,000 in payrolls. The report, which hinted at a continued upside risk for inflation, led investors to scale back their bets that the Federal Reserve would start cutting rates in March.
Yellen focused on the latest wage data, which revealed that average hourly earnings increased by 4.1% in the year up to December. Considering that consumer inflation is projected to be 3.2% for the year, this implies that wages surpassed price growth in 2023.
“She stated that wage increases are currently surpassing price increases. American workers are making progress, and the improvement for middle-income families is particularly remarkable.”
Yellen declined to comment on how she believed the Fed should proceed, but she stated that the central bank had effectively managed monetary policy.
“Yellen stated that the direction the labor market, economy, and inflation have taken suggests that a series of good decisions have been made.”
For two years, the Treasury chief consistently rejected the bleakest predictions for the economy of the United States, even when the central bank carried out an aggressive rate hike campaign throughout much of 2022 and 2023. While she never completely ruled out a recession, she repeatedly mentioned seeing a “path” towards what is known as a soft landing.
In recent weeks, Yellen has been experiencing something similar to a victory lap. In December, she stated that economists who predicted a recession were now “eating their words” and she reiterated her criticism on Friday.
“She stated that there has been a great deal of pessimism about the economy that has proven to be unfounded. A year ago, most forecasters believed that we would enter a recession. Clearly, that has not happened.”
(Bloomberg)
