Economic Indicators

Yellen: Not all recessions alike, inflation can come down amid full employment


FILE PHOTO: U.S. Treasury Secretary Janet Yellen testifies before a Senate Finance Commmittee hearing on President Biden’s 2023 budget, on Capitol Hill in Washington, U.S., June 7, 2022. REUTERS/Evelyn Hockstein/

By David Lawder

ROSEBUD, South Dakota (Reuters) -U.S. Treasury Secretary Janet Yellen said on Tuesday she still views two quarters of negative growth as a good rule of thumb to indicate a recession, but believes it is possible to bring down inflation while maintaining full employment.

“A shorthand of two quarters of negative growth has typically worked, and so a lot of people think of it that way,” Yellen told reporters during a visit to the Rosebud Sioux Tribe reservation in South Dakota when asked how she would measure a recession. “But recessions aren’t all the same.

“There are deep recessions. There are shallow recessions. There are recessions that have rapid recovery. There are recessions that might raise the unemployment rate slightly, but not a whole lot,” she said.

Yellen has said recently that a U.S. recession “is not inevitable” despite aggressive interest rate hikes from the Federal Reserve to cool demand – moves that have prompted more economists to forecast a recession by 2023.

But she said she believed most economists were not predicting recession because they were taking into account the unique features of the post-COVID-19 economy, including a “quite depressed” labor force participation rate.

“And so we have a very tight labor market. Wages have been rising pretty rapidly, but if we see people come back into the labor market, that’s one way in which labor market tightness might be mitigated and that could help to bring down inflationary pressures,” Yellen said.

The current economic situation should be viewed with this in mind, she said.

“Staying in the neighborhood of tight labor markets, what people would dub full employment, I believe it’s possible,” Yellen added.

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