Treasury Secretary: This economy 'is what most people call a soft landing'
U.S. Treasury Secretary Janet Yellen thinks recession fears are overblown and that the economy is still on track for a soft landing.
In a recent interview with Bloomberg, Yellen said, “Things look good, I don’t see red lights flashing.”
She referred to “the kind of metrics that we would monitor that would summarize risks,” such as asset valuations or excessive borrowing.
Although Yellen admits she is “attentive to downside risks” in employment, she thinks that the job market is on solid footing overall.
“While there are risks, it really has been amazing to be able to get inflation down as meaningfully as we have” while maintaining strong economic growth, said Yellen.
“This is what most people call a soft landing.”
The ex-Fed chair expressed her views one day after government data showed a further deceleration in job growth in August.
According to the Bureau of Labor Statistics, employers added 142,000 workers to payrolls during the month, missing the consensus forecast by around 18,000.
The positive spin was that the unemployment rate ticked lower to 4.2%.
Yellen’s comments ruffled a lot of feathers in financial circles, with some experts criticizing her poor track record in economic forecasting.
Not so fast, Janet
Although predicting the economy is nearly impossible, one of Yellen’s forecasts has aged especially badly.
In 2017, while serving as Fed Chair, Yellen said she doesn’t expect there to be a new financial crisis in “our lifetimes.”
Roughly two years later, in September 2019, the Fed was forced to address a liquidity crisis by injecting tens of billions of dollars worth of reserves into the banking system.
While the recent surge in inflation seems to be over, the economy isn't out of the woods yet—especially the banking sector.
In early 2023, the Fed’s aggressive rate hikes set off a regional banking crisis, forcing the central bank, Treasury Department, and Federal Deposit Insurance Corporation (FDIC) to intervene.
That could be the tip of the iceberg. According to the FDIC, U.S. banks had a staggering $517 billion in unrealized losses as of the first quarter of 2024.
While this was much lower than the $684 billion peak reported in 2023, it was a sizable jump compared to the previous quarter.
Yellen’s assertion of “no red lights” reminded international banking veteran James Turk “of the blatant cheerleading from Fed officials and the Federal Reserve before the 2008 crash.”
Turk, who founded Goldmoney.com in 2001, said, “There are always red lights in a fiat currency system.”
Beyond the banking sector, QI Research CEO Danielle DiMartino Booth warned of a large wave of bankruptcies looming over the horizon.
According to S&P Global Markets Intelligence, 356 corporations filed for bankruptcy in the first six months of the year, exceeding any comparable period since the Global Financial Crisis.