US Fed rate cut is a ‘very positive sign’ for economy: Yellen
THE US central bank’s decision to slash interest rates this week is a “very positive sign” for where the world’s biggest economy stands, US Treasury Secretary Janet Yellen said on Thursday (Sep 19).
Yellen’s remarks came a day after the Federal Reserve opted for an aggressive rate cut of half a percentage point, its first since 2020 as inflation cooled.
“It reflects confidence on the part of the Fed that inflation has come way down and is on the path back to the 2 per cent target, and that the risks with respect to inflation have really meaningfully diminished,” Yellen told an event in Washington. “At the same time, we have a job market that remains strong.”
Yellen pointed out that bringing down inflation successfully in the context of a robust jobs market – known as a soft landing – is “exactly what we’re seeing in the economy”.
In a separate speech on Thursday, US President Joe Biden said: “The Fed lowering interest rates isn’t a declaration of victory. It’s a declaration of progress.” He added at the Economic Club of Washington DC that it is a signal the US has entered a new phrase of recovery, though stressing there remains more work to be done.
Their comments came after Republican presidential nominee Donald Trump charged on Wednesday that the Fed’s decision was either a response to a “very bad” economy, or it had been “playing politics”.
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Lower interest rates bring down the cost of borrowing and could be seen as being beneficial to the White House administration ahead of the presidential election in November – with vice-president Kamala Harris the Democratic nominee.
But Fed chair Jerome Powell stressed after announcing the rate reduction: “We’re not serving any politician, any political figure, any cause, any issue.” Biden said in his speech that the Fed’s independence has served the country well.
On Thursday, Yellen also defended tariffs that the Biden’s administration recently hiked on Chinese goods, ranging from electric vehicles to batteries. “These are areas where China has enormous excess capacity. We’ve made a conscious decision that in the area of clean energy, we want to develop this as an industry in the US,” she said.
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“That’s not to say we want to do everything entirely ourselves,” Yellen added. “But we really want to reduce our dependence on China.”
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