The Federal Reserve (Fed) begins a two-day meeting on Tuesday to weigh his options in his aggressive campaign of interest rate hikes to contain inflation, at a time when economists say the auto strike, the possibility of a government shutdown and the end on October 1 of A three-year moratorium on student loan payments could conspire to cool the economy faster than expected.
Yellen acknowledged that the soft landing outlook, which has gained favor among economists in recent weeks as recession predictions fade, could be affected by headwinds such as the UAW strike against Detroit automakers. .
The union has threatened to expand the strike – which already keeps some 13,000 workers unemployed – to more plants if there is no progress towards an agreement before Friday. President Joe Biden’s administration is working to encourage both sides to resolve the strike quickly, Yellen said.
“The president is closely monitoring the situation, has sent staff to Detroit to provide assistance, and is urging automakers to actively negotiate with unions 24 hours a day, seven days a week, to reach an agreement. fair agreement,” he commented.
He added that since the government has provided resources, including tax breaks, to ensure a strong future for electric vehicles in the United States, it is important to Biden that “the jobs that are created in that industry are good jobs.”
“Unnecessary risk”
The risk of a federal government shutdown in less than two weeks has grown as hardline Republicans in the House of Representatives demand spending cuts beyond levels agreed to in June. House Speaker Kevin McCarthy faces a major test of his standing as he tries to pass spending legislation before September 30, the end of the fiscal year.
“It’s an unnecessary risk to the economy and to the normal functioning of government,” Yellen said, adding that there is bipartisan support in the Senate for adhering to the $1.59 trillion discretionary spending cap for fiscal 2024 agreed to in June.
However, this and other risks are not expected to take the economy off its current path of slower but sustainable growth.
The U.S. Treasury market “continues to do quite well” despite higher rates and some volatility, he noted.
“There have been periods where liquidity has been a little tighter. But nothing that is really outside of what you would expect given the volatility of the underlying market,” Yellen added.
Resuming student loan repayment on Oct. 1 will divert some spending, but Biden’s improvements to income-driven repayment policies will provide relief to many borrowers, Yellen said.
Likewise, Yellen stated that China’s economic slowdown will have a limited impact on US growth, echoing recent comments by Deputy Treasury Secretary Wally Adeyemo.
Yellen reiterated that the United States does not intend to disengage from the Chinese economy and said she welcomes the continuation of trade and investment in “non-controversial” sectors, but that the Biden administration will work on “de-risking” supply chains. that have an “excessive dependence” on China.