Inflation will fall a lot even if there's no recession next year, Janet Yellen says
- Treasury Secretary Janet Yellen expects inflation to decline significantly next year.
- Sliding shipping costs and gas prices will help rein in price rises, she told CBS on Sunday.
Inflation looks set to slow significantly in the coming year even if there's no recession, as long as the US economy isn't rattled by further shocks, according to Janet Yellen.
"There's a risk of recession, but it certainly isn't in my view something that is necessary to bring inflation down," the Treasury Secretary told CBS's '60 Minutes'.
Accelerating inflation has been one of the dominant themes for markets and the economy in 2022.
The US Consumer Price Index climbed 7.7% in its latest reading from October, compared with an increase of 8.2% the previous month. While that suggested inflation is starting to cool slightly, it is still running well above the Federal Reserve's 2% target.
Many economists and businesses expect a recession to hit the US in the first half of next year — and that could help to further curb price rises by suppressing consumer spending.
Yellen said that she's confident inflation will start to fall significantly in 2023 even if there isn't a recession, thanks to falling shipping costs and a drop in energy prices.
"First of all, shipping costs have come down — delivery lags, which were very long, those have shortened," she said. "Gas prices are way down — I think we'll see a substantial reduction in inflation in the year ahead."
"By the end of next year, you will see much lower inflation if there's not an unanticipated shock," Yellen added.
The White House has repeatedly touted the fact that energy costs have fallen despite Russia's invasion of the Ukraine in February, with average prices at the pump falling 35% from their all-time high in June to $3.26 a gallon, according to AAA.
The government is working to rein in consumer prices in tandem with the Fed, which has raised interest rates by 375 basis points this year in order to contain inflation.
Yellen told CBS that the Biden Administration is working to avoid rising prices becoming entrenched, as well as a repeat of the combination of high inflation and sluggish growth that weighed on the US economy for much of the 1970s.
"We learned a lot of lessons from the high inflation we experienced in the 1970s and we're all aware that it's critically important that inflation be brought under control and not become endemic to our economy," she said. "We're making sure that that won't happen."