Treasury Secretary Janet Yellen believes U.S. consumers, businesses and banks will be able to survive rising interest rates and trusts the Federal Reserve The battle to stamp out the inflation dragon appears to be going well.
Yellen, who arrived in Marrakech this week for the annual meetings of the International Monetary Fund and World Bank, also dismissed concerns that the strong jobs report could actually have a negative impact on the economy.
Speaking to the Fed, Yellen noted that core inflation, which excludes rapidly volatile food and energy prices, is actually “doing very well.” Financial Times.
Inflation has fallen sharply over the past 12 months, and the Federal Reserve raised interest rates this summer to their highest level in 22 years, currently at 5.5%.
It seems to be working. Inflation in August 2023 Set at 3.7%, lower than 8.3% in the same period last year. August’s numbers were also driven in part by rising oil prices, which peaked at $3.984 a gallon in the third week of the month.
Yellen also refused to admit that September’s strong jobs report was not a good thing for the U.S. economy.
The employment report released by the U.S. Bureau of Labor Statistics showed that the economy added approximately 336,000 new jobs this month, much higher than the net growth of 227,000 jobs in August.
Seems like good news, right? Incorrect. Markets reacted with concern that the strong labor report could prompt the Federal Reserve to keep interest rates higher for longer.
Yellen dismissed the concerns, saying the report was “impressive” and should be viewed as “a positive, not a negative.” After all, she added, the report means “more people want to work and have jobs.”
“If we see an overheating of the labor market, there could be problems, but I don’t really see evidence of that,” she added.
What about the bond debacle?
Wall Street was less convinced by Yellen’s take on the jobs report, a sign it’s uneasy about a further selloff in bond markets.
The U.S. Treasury market, which underpins much of the global financial system, is currently seeing a 16-year high in 10-year Treasury yields. The sell-off isn’t just a headache for U.S. officials, as rising U.S. borrowing costs are also pushing up global costs.
But Yellen is unfazed by the idea that interest rates are causing “dysfunction” in U.S. markets.
“I don’t see any evidence of dysfunction associated with rising rates. When rates are more volatile, sometimes you see some impact on market functioning, but that’s pretty standard,” she said.
Her confidence was echoed in part by Wharton professor Jeremy Siegel, who wrote that the economy’s strength should not lead the Fed to push for further rate hikes.
“Is the Economy Too Strong?” Professor Siegel ponders in his book Wisdom Tree Weekly Blog. “The jobs report sent yields surging on concerns the Fed will keep them elevated for longer. The stock market’s initial reaction to the jobs report was lower, but ended much stronger on Friday – which I think is Correct response.”
He added that “no” data, no matter how strong, makes him think the Fed will raise interest rates again, given the many uncertainties that remain in the economy.
Those include a UAW strike, some weakness in the housing market and the continued threat of a government shutdown.
“I don’t think inflation that’s one-tenth higher than expected will force the Fed to raise interest rates,” Professor Siegel concluded. “Perhaps inflation 0.2% to 0.3% higher than expected could lead to the Fed raising interest rates.”
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