US Treasury Secretary Janet Yellen assumes that the fight against persistently high inflation will not slow down the US economy too much. “I think what you call a soft landing is possible,” Yellen said on US television.
A soft landing means getting out of the situation without major economic upheavals. “I think we probably need some easing in the labor market to bring inflation down, but that doesn’t mean unemployment has to go up,” Yellen said.
A currently slower economic growth is not surprising because the economy is working close to its capacity due to low unemployment. “So I think the prospects for moderate growth and a continued strong labor market with inflation falling remain intact,” Yellen said. Of course there are risks. However, she believes that a strong labor market and lowering inflation are compatible.
For about a year, the US Federal Reserve has been fighting high consumer prices with significant interest rate hikes. According to the theory, with a tight monetary policy the risk also increases that the central banks slow down the economy so much that the economy is stalled. A strong labor market is also a cause for concern: there is a risk of a wage-price spiral if there is a shortage of workers in important sectors and consumer prices remain high.
