Yellen says U.S. inflation fight 'not a straight line' after price rise
data
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[February 25, 2023] By
David Lawder
BENGALURU (Reuters) - U.S. Treasury Secretary Janet Yellen told Reuters
on Saturday that new U.S. data showing inflation jumped unexpectedly in
January signals that the fight against inflation "is not a straight
line" and more work is needed.
In an interview with Reuters at a G20 finance leaders meeting in India,
Yellen rejected arguments from some economists that a recession or
significantly higher unemployment was needed for the Federal Reserve to
win its inflation fight, sticking to her view that inflation still can
be brought down while maintaining a strong labor market.
The strongest U.S. consumer spending data in nearly two years on Friday
showed that the Fed's preferred measure of inflation, the personal
consumption expenditures price index (PCE), jumped unexpectedly in
January, calling into question whether the Fed remains behind in its
inflation fight.
Revisions to prior data showed that previous disinflation was milder
than previously reported, and that data added to financial market fears
that the Federal Reserve could continue raising interest rates into
summer.
"I think this report showed that it's not going to be a straight line -
disinflation is not a straight line," Yellen said, adding that inflation
"remains a problem."
"It’s one read, but core inflation still remains at a level that's above
what's consistent with the Fed’s objective. So, there's more work to be
done," Yellen added.
But she said that inflation has still broadly come down over the past
year and that trend should continue, because housing rental contracts
were still adjusting to lower levels compared to their pandemic-era
peaks.
"We see reasons for, in coming months, further declines in inflation,
especially because of the importance of shelter in the overall indices,"
she said.
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U.S. Treasury Secretary Janet Yellen
speaks during her bilateral meeting with British Chancellor of the
Exchequer Jeremy Hunt on the sidelines of G20 finance ministers'
meeting on the outskirts of Bengaluru, India, February 24, 2023.
REUTERS/Samuel Rajkumar
RECESSION NOT NECESSARY
A new study by three prominent economists released on Friday also
suggested that the Fed would need a recession or significantly
higher unemployment to win its inflation fight.
The authors, including J.P. Morgan chief economist Michael Feroli,
Columbia Business School professor Frederic Mishkin and Brandeis
International Business School professor Stephen Cecchetti, found
that in 16 past instances of central bank-engineered disinflation,
none occurred without a recession.
"I don’t accept that as a general statement that always has to be
true," Yellen said, joining pushback from Fed officials against the
study.
She said sometimes recessions are necessary to bring inflation down,
such as in the 1970s when there was a strong wage-price spiral.
"But I believe that is not the situation now," Yellen said. "And
I've said repeatedly and continue to believe that there is a path to
bringing inflation down that would be consistent with maintaining a
strong labor market."
(Reporting by David Lawder; Editing by Mark Potter)
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