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Senior Biden administration officials on Sunday pushed back on some economists’ projections of an impending recession, arguing that it is possible to curb inflation without causing a major economic slowdown.
“It’s President Biden’s top priority to bring it down, and [Federal Reserve] Chair [Jerome] Powell has said that his goal is to bring inflation down while maintaining a strong labor market,” Treasury Secretary Janet Yellen said on Sunday. “That’s going to take skill and luck, but I believe it’s possible. I don’t think a recession is inevitable.”
“Over time, I certainly expect inflation to come down, and I think it’s possible to have that happen in the context of a strong labor market,” Yellen added on ABC’s “This Week.”
Yellen also said she expected the economy to “slow” because of the Federal Reserve’s interest rate hikes but stressed that consumer spending remains strong, even as people shift their spending patterns to accommodate higher food and energy prices.
“Bank balances are high,” Yellen said. “It’s clear that most consumers, even lower-income households, continue to have buffer stocks of savings that will enable them to maintain spending.”
That sentiment was shared by National Economic Council Director Brian Deese, who also pointed to low proportions of people missing payments on mortgages and credit cards.
“Not only is a recession not inevitable, but I think that a lot of people are underestimating those strengths and the resilience of the American economy,” Deese said during an appearance on CBS’s “Face the Nation.”
The officials echoed President Biden’s comments to The Associated Press on Thursday. Biden said one day after the Federal Reserve hiked interest rates by the largest amount in nearly 30 years that a recession was “not inevitable.”
The rate hikes, which make borrowing more expensive, aim to contain price growth by reducing demand to better match supply. But as businesses curb spending in response to the hikes, employment growth is already beginning to slow from the torrid gains seen earlier in the year.
Powell has indicated the central bank will continue raising interest rates to restrain the economy, with Fed officials expecting to hike interest rates by another 2 percentage points by the end of the year, which would be the highest since the lead-up to the 2007-2008 financial crisis and recession.
The Biden administration has repeatedly stressed it will not interfere with or pressure the Fed’s effort to raise interest rates.
But some leading economists have disagreed with the administration’s optimism.
Former Treasury Secretary Larry Summers said Sunday on NBC’s “Meet the Press” that he predicts a recession by the end of next year based on historical trends.
“Nothing is certain, and all economic forecasts have uncertainty,” said Summers. “My best guess is that a recession is ahead.”
Many experts predicting a recession point to supply-side challenges beyond the Fed’s control, including Russia’s invasion of Ukraine, which has sent food and fuel prices soaring. Those commodities helped power a May spike in inflation that surpassed economists’ projections.
“We face unprecedented global circumstances, a global pandemic and a war in Europe that is affecting the global economy,” Deese said on CBS. “But at the same time, we have a strategy that will make a difference.”
Beyond stressing the Fed’s independence, administration officials have said that strategy includes passing legislation to reduce everyday costs. Deese called legislative remedies the White House’s “single most impactful” avenue to curb rising prices.
Senate Minority Leader Charles Schumer (D-N.Y.) and Sen. Joe Manchin (D-W.Va.) have been privately meeting to negotiate a bill to reduce prescription drug costs, a piece proposed as part of Biden’s Build Back Better agenda that Manchin ultimately opposed.
“We’re working very closely with congressional leadership, with Senate leadership, on that,” Deese said on CBS. “Sen. Schumer is working with his caucus to try to get a final package in place, and we’re hopeful that we’ll see progress on that in the coming weeks.”
Deese added that the administration is also working to pass legislation to accelerate domestic production of semiconductor chips to boost supply and pushing for a corporate minimum tax to reduce the federal deficit.
Yellen, meanwhile, said on “This Week” that the administration may also propose a federal gas tax holiday to curb rising prices at the pump. Gas prices have hovered around a national average of $5 in recent days.
“Gas prices have risen a great deal, and it’s clearly burdening households,” Yellen said on ABC. “So he stands ready to work with Congress, and that’s an idea that’s certainly worth considering.”