US recession risk low but Europe 'vulnerable': Yellen

THE United States is unlikely to fall into a recession as interest rates rise to fight soaring inflation, the US treasury secretary said on Wednesday, while warning of the risks for Europe following the invasion of Ukraine.

“I really don’t expect the United States to fall into a recession,” Janet Yellen said at a press conference ahead of a meeting of G-7 finance ministers in Germany.

Europe is “more vulnerable and of course more exposed on the energy front” as prices rise following the Russian invasion of Ukraine, she said.

The continent is highly reliant on Russian energy imports for its energy needs, with any disruption to supplies of oil and natural gas threatening stoppages for industry.

The surge in energy prices drove inflation in the eurozone to 7.5 per cent in April, an all-time high for the currency club and well above central banks’ two-per cent target.

The rise has been even steeper in the US, with consumer prices at an 8.3-per cent rate in April despite greater energy independence.

The Fed has responded to the soaring inflation by dialling up a series of interest rate hikes to try to get price rises under control.

At its last policy meeting at the beginning of May, the central bank announced an unusually large 50-basis-points increase in rates.

But the swiftness of hikes has increased fears of a hard landing as interest rate rises put the brakes on economy, pushing it into a recession, defined as two consecutive quarters of negative growth.

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The Fed Chair Jerome Powell has sought to assuage such fears, saying the US is “a strong economy”.

“Nothing about it suggests that it’s close to or vulnerable to a recession,” he told reporters after the Fed’s last meeting. AFP