US TREASURY Secretary Janet Yellen said US growth needed to slow to a rate more in line with its potential growth rate to bring inflation back to target levels since the economy was operating at full employment.

She added that demand-supply imbalances in the labour market have abated.

“Growth has to slow. I mean, you want growth to slow, you want it to be in line with potential when you’re operating at full employment,” Yellen told reporters on Tuesday on the sidelines of a climate event.

“It’s completely natural and desirable, that growth, the pace of growth, is slowing.”

Yellen did not specify what that potential growth rate was, except to say the economy has been growing above that level.

The Treasury secretary also said that surveys of companies showed that demand for labour was softer, and that was helping to bring down core inflation.

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On China, Yellen said she expected Chinese authorities to use their fiscal and monetary policy space to avoid a major slowdown of its economy that would limit spillovers to the US economy.

“There could be spillovers. I wouldn’t rule it out,” Yellen said.

China, the world’s second-largest economy, has lost steam since the second quarter and showed only tentative signs of stabilisation last month with policy support. It has sought to court foreign capital as its economic recovery from the Covid-19 pandemic slows in the face of tepid overseas demand and property weakness.

“I think the Chinese would most likely use the policy space they have to try to avoid a slowdown with major proportions,” she added.

Yellen, who is among top officials from the Biden administration to have visited China recently, has said the United States was not seeking to decouple from the Chinese economy.

Yellen has said she made clear to Chinese counterparts that narrow US restrictions on technology and outbound investments are aimed at protecting US national security, and not to impair China’s modernisation. REUTERS