(Bloomberg) — Treasury Secretary Janet Yellen announced Friday that the U.S. economy has achieved a long-awaited soft landing, a historically unusual event in which high inflation is tamed without significantly damaging the labor market.
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“What we’re seeing now I think we can describe as a soft landing, and I hope it continues,” Yellen said Friday in an interview with CNN.
Government figures released earlier Friday showed that job gains and wage increases in December exceeded expectations, with payrolls rising by 216,000. The report, which pointed to continued upside risks to inflation, prompted investors to scale back bets that the Fed will begin cutting… Interest rates in March.
Yellen focused on the latest wage data, which showed average hourly earnings rose 4.1% during the year through December. Given that economists expect consumer inflation this year to reach 3.2%, this means wages will outpace price growth in 2023.
“Wage increases are outpacing price increases now,” she said. “American workers are making progress, and the progress made by middle-income families is very remarkable.”
Yellen declined to comment on how she thinks the Fed should proceed but said the central bank has handled monetary policy well.
“The path that the labor market, the economy, and inflation have taken suggests they made a bunch of good decisions,” Yellen said.
For two years, the Treasury secretary has consistently rejected bleaker outlooks for the US economy, even as the central bank continues an aggressive campaign to raise interest rates through most of 2022 and 2023. Although she did not completely rule out a recession, she repeatedly said she saw a “path” to a so-called soft landing.
In recent weeks, Yellen has been in a state of victory lap. In December, she said economists who predicted a recession were now “eating their words,” and she repeated her criticism on Friday.
“There was a lot of pessimism about the economy that proved unwarranted,” she said. “A year ago, most forecasters thought we would fall into a recession. Clearly that did not happen.”
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