US Treasury Secretary Janet Yellen said on Tuesday that the US economy is on track to achieve full employment by next year, despite some economists’ predictions of high unemployment and low growth.
Yellen spoke at a Reuters Next event, where she discussed the Biden administration’s economic policies and the impact of the COVID-19 pandemic. She said that the US economy has outperformed expectations, thanks to the massive fiscal stimulus and the rapid vaccination campaign.
“The economists who were predicting that we would have high unemployment for years to come are eating their words,” Yellen said. “We’re seeing very strong growth, we’re seeing productivity increases, we’re seeing labor force participation pick up.”
Yellen said that the US economy is expected to grow by around 6% this year, the fastest pace since 1984. She also said that the unemployment rate, which stood at 4.6% in October, is projected to fall below 4% by the end of next year.
US inflation remains a challenge
However, Yellen acknowledged that the US economy still faces challenges, especially from high inflation, which has surged to a 30-year high of 6.2% in October. She said that inflation is mainly driven by supply chain disruptions and pent-up demand, and that it will likely subside as the economy returns to normal.
“We do expect inflation to come down. I’m not saying that this is a one-month phenomenon. But I think over the medium term, we’ll see inflation decline back toward our longer-run 2% objective,” Yellen said.
Yellen also defended the Federal Reserve’s monetary policy, which has kept interest rates near zero and continued to buy $120 billion worth of bonds per month. She said that the Fed has the tools and the credibility to deal with inflation, and that it will act appropriately when the time comes.
“I have full confidence in the Fed. I think they’ve done a good job. I think they will make sure that we have price stability over the medium term,” Yellen said.
US fiscal policy supports growth and equity
Yellen also praised the Biden administration’s fiscal policy, which has enacted $1.9 trillion in COVID-19 relief and $1.2 trillion in infrastructure spending. She said that these measures have supported the economic recovery and helped millions of Americans who were hit hard by the pandemic.
Yellen also expressed optimism that Congress will pass the $1.75 trillion Build Back Better plan, which aims to invest in social programs, climate action, and tax reforms. She said that this plan will boost long-term growth, reduce inequality, and improve fiscal sustainability.
“This package of investments is going to make our economy more productive, it’s going to enhance labor force participation, it’s going to create good jobs, it’s going to address some of the long-standing inequities that have held back economic performance and hurt many families,” Yellen said.
Yellen also said that the Build Back Better plan will be fully paid for by raising taxes on corporations and wealthy individuals, and by strengthening tax enforcement. She said that this will not only reduce the budget deficit, but also make the tax system fairer and more efficient.
“This is not a plan that’s going to be inflationary. It’s a plan that’s going to improve the fiscal position of the United States,” Yellen said.