Yellen ‘feeling very good’ about soft landing for US economy

Treasury Secretary Janet Yellen said she's increasingly confident that the U.S. will be able to contain inflation without major damage to the job market, hailing data showing a steady slowdown in inflation and a fresh influx of job seekers.

"I am feeling very good about that prediction," Yellen said Sunday when asked about her previous hopes that the U.S. would avoid a recession while still reining in consumer-price gains. "I think you'd have to say we're on a path that looks exactly like that."

Speaking in an interview on her aircraft en route back from attending the Group of 20 summit in New Delhi, the Treasury chief also played down any risk from China's efforts to increase the sway from the separate BRICS grouping of major emerging nations. "The G-20 "remains the premier forum for global cooperation," she said.

Yellen and President Joe Biden attended the gathering, which was skipped by China's President Xi Jinping, against the backdrop of a raft of positive data on the world's largest economy. Headline inflation has slowed toward 3% — though still above the Federal Reserve's 2% target — without any decline in payrolls or GDP.

"Every measure of inflation is on the road down," Yellen said. She also highlighted that while the U.S. unemployment rate increased in August after reaching the lowest levels in more than a half-century earlier this year, that jump wasn't caused by a large wave of layoffs.

The jobless rate hit 3.8% last month, thanks in part to an increase in the labor force participation rate to the highest level since February 2020, just as COVID began to spread.

Seeing some easing in the labor market is "important and a good thing," and "it's a clear plus" that it's coming through more people looking for work, Yellen said.

The data mark a validation of sorts for the Treasury chief, who has consistently said over the past year that she sees a path for inflation to get to the Fed's 2% target without a spike in joblessness.

With other figures showing sustained gains in consumer spending and signs of stabilization in the housing market despite a surge in mortgage rates, economists have been abandoning or postponing their calls for a recession.

For their part, Goldman Sachs Group Inc. economists now see just a 15% chance the U.S. will slide into recession, down from 20% previously.

Positive signs for the U.S. have contrasted with disappointing data from China that have suggested the world's No. 2 economy may not reach Beijing's target of 5% growth this year.

Yellen reiterated her view that China's policymakers still have scope to step up if needed to support the economy. Xi's team has taken a number of measures to loosen strictures on the property market, but has stopped short of broad stimulus packages for consumer or sweeping interest-rate cuts.

"I think they have quite a bit of policy space if they decide that it's necessary to use it," Yellen said in the interview. "They've made what to me seem like relatively small adjustments in monetary policy."

Diverging data for the two economies have contributed to China's currency depreciating against the dollar, with the offshore yuan last week falling toward a record low. That's seen Beijing take a number of steps to slow the declines. Yellen signaled those measures are understandable.

"They want the world, including their own citizens, to have confidence in their economy and financial system," she said.

As for China's recent push to expand the BRICS group to include six new members, Yellen highlighted that this assembly has nations with "highly diverging interests."

India — which hosted the G-20 summit and is also a BRICS member — has an enduring border dispute with China, and Xi's absence in the New Delhi gathering this weekend stoked speculation of a snub to his giant neighbor.

The U.S. has "a series of strong and strengthening alliances" with several of the BRICS-11, including recent cooperation on biofuels that involves Brazil and South Africa, Yellen said. She also pointed to the importance of G-20 work over the last couple of years on global challenges including on health, food security and lending.

"It remains the dominant and premium forum for global cooperation," Yellen said of the G-20. "It was on display very clearly at this set of meetings."

She also highlighted an "extremely strong" relationship with India, which with the latest trip became the country which Yellen has visited the most times as Treasury secretary — four.

The U.S. push with emerging markets has also featured deepening ties with Vietnam, a hub for consumer electronics that has its own border tensions with China. Biden headed to Vietnam after his India stop, and Yellen went their earlier this summer.

As they return to the U.S., Yellen and Biden face another showdown over fiscal issues. Congress has yet to pass annual federal appropriations bills, leaving Washington on course for a potential partial government shutdown at the end of this month.

Yellen in Sunday's interview reiterated her relatively sanguine perspective on the U.S. fiscal trajectory, despite a widening budget deficit propelled in part by rising interest costs. In the first 10 months of the fiscal year, interest payments totaled $726 billion.

Higher interest expenses do create pressures on the deficit and require caution, Yellen said, highlighting that Biden "believes strongly in having a fiscally sustainable budget."

"I think where we are is OK," she said of the sustainability of federal finances.