A recession in the United States is not "at all inevitable," Treasury Secretary Janet Yellen argued Sunday, days after the Federal Reserve hiked interest rates and raised concerns that an economic downfall could be looming.
Though the economy is predicted to worsen, Yellen, during an appearance on ABC's This Week, maintained that it is "natural" to expect a transition after rapid growth.
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"I expect the economy to slow," Yellen told ABC's George Stephanopoulos. "It's been growing at a very rapid rate, as the economy, as the labor market, has recovered and we have reached full employment. It's natural now that we expect a transition to steady and stable growth, but I don't think a recession is at all inevitable."
In response to the question of whether a recession is "likely" amid indications that consumers are pulling back on daily services such as haircuts and house cleanings and the labor market slowing, Yellen said that "patterns of spending are changing" but not an immediate cause for concern.
"Although patterns of spending are changing, and higher food and energy prices are certainly affecting consumers and making them change their patterns of spending, but bank balances are high," Yellen said. "It's clear that most consumers, even lower-income households, continue to have buffer stocks of savings that will enable them to maintain spending, so I don't see a drop off in consumer spending as the likely cause of a recession in the months ahead."
Pressed about whether her position was "too optimistic" after conceding earlier this week to being "wrong about the path of inflation" last year, Yellen admitted that "inflation is really unacceptably high."
"Part of the reason is Russia's war on Ukraine has boosted energy and food prices in the United States and globally," Yellen added. "It's important to recognize that the United States is certainly not the only advanced economy suffering from high inflation. We see it in U.K., we see it in France, Germany, Italy."
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Yellen's comments come as top economists anticipate the economy will fall into a recession by sometime next year.
Economists predict that the probability of recession is at 44% in the next 12 months, according to a survey by the Wall Street Journal published Sunday. The probability of a recession is rising due to higher borrowing costs, the pace of inflation, supply chain problems, and more.
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