US Treasury Secretary Janet Yellen on Friday declared the country has achieved a soft landing after recent jobs data showed continued economic strength in the face of high interest rates.
“What we’re seeing now I think we can describe as a soft landing, and my hope is that it will continue,” she told CNN.
Her declaration comes hours after a report from the Labour Department showed that job gains from December came in stronger than expected.
American employers added 216,000 jobs last month, up from 199,000 in November, the Labour Department reported. The unemployment rate was unchanged at 3.7 per cent.
Economists polled by FactSet expected that the US would add 160,000 positions, with the unemployment rate ticking up to 3.8 per cent.
Meanwhile, average hourly earnings rose by 0.4 per cent on a monthly basis and 4.1 per cent year on year.
“American workers are getting ahead, and the progress for the middle-income families is very noticeable,” Ms Yellen told CNN.
Inflation has been the primary battle for the Federal Reserve over the last two years. To bring inflation back down to its 2 per cent goal, the US central bank has raised interest rates 11 times to its current 5.4 per cent rate.
Government data shows that inflation has fallen to 2.6 per cent, not far off from the Fed’s goal. Meanwhile, economic growth remains strong. And much of this has been accomplished without a sharp increase in unemployment.
Ms Yellen’s remarks come at a time when President Joe Biden’s administration continues to face questions over its handling of the economy as the Democratic incumbent faces re-election this year.
And with most voters listing the economy and inflation as their top issues, Mr Biden is expected to highlight his accomplishments on the campaign trail to convince sceptical voters.
“There has been a lot of pessimism about the economy that’s really proven unwarranted,” Ms Yellen told CNN.
“A year ago, most forecasters believe we would fall into a recession. Obviously, that hasn’t happened.”
Officials at the Federal Reserve, including its chairman, Jerome Powell, have struck a more cautious tone.
“Declaring victory would be premature,” Mr Powell told reporters following the Fed’s December 12-13 policy meeting.
And in remarks on Wednesday, the Federal Reserve Bank of Richmond’s president said a soft landing was becoming the more probable scenario but was “not inevitable”.
Geopolitical risks – such as recent developments in the Red Sea – and interest rates hurting consumers more than expected both contribute to an uncertain economic outlook, Fed officials have noted.
But with clear progress in lowering inflation under way, the conversation in the Fed’s tightening cycle has since shifted to how long rates will be elevated for.
Fed projections estimate three rate cuts for this year, although the timing of when this might happen is unclear.
A majority of traders expect the Fed will issue its first rate cuts in this tightening cycle in March, according to CME Group data.
Updated: January 05, 2024, 6:05 PM
