U.S. Economy’s Path to a Soft Landing

By Susan Heavey and David Lawder

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen stated on Thursday that labor market and inflation data indicate the U.S. economy is headed toward a “soft landing,” but that reducing housing costs is the final hurdle in controlling inflation.

In a live interview with CNBC, Yellen commented on the Federal Reserve’s stance, noting that the U.S. central bank’s benchmark overnight interest rate is expected to continue its decline toward a neutral policy level.

“I always believed that there was a path to a soft landing, that it was possible to bring inflation down while maintaining a strong labor market, and to me, that’s what the data suggests has happened,” Yellen stated.

She expressed optimism about the potential for falling housing costs as well.

Yellen emphasized that U.S. deficit reduction is necessary for managing long-term interest costs, yet the Biden administration considers it crucial to invest in sectors of the economy that will promote future growth.

On the topic of financial system stability, Yellen assured that banks are well-capitalized, but acknowledged the turbulence from uninsured deposits in 2023, which led to bank deposit runs. She mentioned that “a good deal of thought is going into how to shore up the liquidity, the access to the Fed’s discount window for banks that do have uninsured deposits.”

Regarding changes to the limits on bank deposit insurance, Yellen indicated that such decisions rest with Congress, while banking regulators are exploring methods to enhance quick access to liquidity when required.