A recession isn’t “imminent”, US Treasury chief says, as the Australian market watches on

recession

US Treasury Secretary Janet Yellen. SOURCE: SIPA USA TOM WILLIAMS/CQ-ROLL CALL/SIPA U

There is no guarantee America will lean into a recession, the nation’s Treasury Secretary Janet Yellen says, as spiking inflation and dwindling consumer confidence stoke fears of a broad-scale downturn.

The US Federal Reserve bumped the underlying interest rate by 75 basis points last week, its sharpest single rise in decades, as the central bank tries to curb runaway inflation.

The interest rate hike rattled the US stock market, with the Dow Jones, S&P 500, and Nasdaq all suffering downturns last week as growth prospects appeared to fade.

On Friday, an Ipsos poll also found US consumer confidence is now at its lowest level since December 2020 as cost pressures mount.

But Yellen has downplayed concerns the US is tumbling towards another extended period of economic stagnation over the next 12 months.

Speaking to the American ABC’s This Week, Yellen said, “I expect the economy to slow”, but stopped short of saying another recession is imminent.

“I don’t think a recession is at all inevitable,” Yellen said.

The claim will be welcomed by Australian onlookers, as fluctuations in the US economy inevitably flow into our own.

Some similar signs can be observed here — inflation is at very high levels, the Reserve Bank of Australia is resorting to large interest rate hikes to slow the flood of money into the economy, and consumer confidence is also taking a beating.

However, it would take some doing for Australia to enter recession mode, commonly defined as two quarters of negative growth in gross domestic product (GDP).

Australia’s GDP grew 0.8% in the March 2022 quarter, and 3.3% over the year, despite the economic hits caused by the Omicron variant of COVID-19 and the earliest supply chain issues sparked by the war in Ukraine.

In its May statement on monetary policy, the Reserve Bank of Australia indicated GDP is expected to expand by 4.25% over the 2022 calendar year, before moderating to 2% through 2023.

In its latest projections, NAB issued a more cautious outlook of 2.7% growth over 2022, while maintaining a recession isn’t on the cards.

“Ultimately, we see a “soft landing” for Australia with the impact of supply constraints unwinding while wage growth reaches a sustainable limit,” the bank said.

“GDP growth is expected to slow, but remain positive and we don’t expect unemployment to rise materially above a level consistent with ‘full employment’.”

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