Treasury Secretary Janet Yellen said Thursday that the US economy is in a state of transition, not recession, despite two consecutive quarters of negative growth.
The recession, Yellen insisted, is a “widespread weakening of our economy” that includes substantial layoffs, business closings, strains on household finances and a slowdown in private sector activity.
“That’s not what we’re seeing right now,” he said during an afternoon news conference at the Treasury. “When you look at the economy, job creation continues, household finances remain strong, consumers are spending and businesses are growing.”
Those comments, however, came on the same day that the Commerce Department’s Bureau of Economic Analysis reported that gross domestic product, the broadest measure of economic activity, fell 0.9% in the second term.
After a 1.6% contraction in the first quarter, the two consecutive declines meet a commonly used definition of a recession. The National Bureau of Economic Research, however, is the official arbiter of recessions, and likely won’t rule for months.
Yellen began her remarks with a list of the administration’s economic accomplishments, including nonfarm payroll growth of more than 9 million.
But inflation has proved the biggest obstacle, rising to 9.1% in June, while economic growth has failed to keep up. Consumer and business confidence levels have fallen, with recent polls showing a solid majority of Americans believe the country is in recession.
Yellen acknowledged the burden of higher prices and said the administration is “laser focused” on addressing the situation.
“We have entered a new phase of our recovery focused on achieving consistent and stable growth without sacrificing the gains of the past 18 months,” he said. “We know there are challenges ahead. Growth is slowing globally. Inflation remains unacceptably high, and this administration’s top priority is to bring it down.”
President Joe Biden and Yellen touted the possibility of a new bill that Democratic lawmakers appear to have agreed to fight inflation. The legislation aims to increase tax revenue, reduce drug costs and invest in renewable energy.
Yellen noted that while the Federal Reserve, which she chaired from 2014 to 2018, has “the primary role in reducing inflation, the chairman and I are committed to taking steps to reduce costs and protect Americans from global pressures we face.”
The Fed has raised rates four times this year, by a total of 2.25 percentage points, and will likely add more hikes later in the year.
Yellen attributed the rise in inflation to the war in Ukraine, supply chain issues and the Covid pandemic. He did not discuss the impact that monetary and fiscal stimulus had on price pressures.