(Singapore, 20th September 2024) THE US central bank’s decision to slash interest rates this week is a “very positive sign” for where the world’s biggest economy stands, US Treasury Secretary Janet Yellen said during the State of the US Economy panel for The Atlantic Festival 2024 on yesterday (Sep 19).
The United States central bank on Wednesday (Sep 18) announced a 50-basis-point reduction in its key lending rate to between 4.75 per cent and 5 per cent.
“It reflects confidence on the part of the Fed that inflation has come way down and is on the path back to the 2 per cent target, and that the risks with respect to inflation have really meaningfully diminished,” Yellen told an event in Washington.
The consumer price index (CPI) increased 0.2 per cent last month after climbing 0.2 per cent in July, the Labor Department’s Bureau of Labor Statistics said on Sep 11, 2024. In the 12 months through August, the CPI advanced 2.5 per cent. That was the smallest year-on-year rise since February 2021 and followed a 2.9 per cent increase in July.
“At the same time, we have a job market that remains strong,” she said.
Yellen added that bringing down inflation successfully in the context of a robust jobs market – known as a soft landing – is “exactly what we’re seeing in the economy.”
Nonetheless, according to statistics released by the US Labor Department on August 2, 2024, the U.S. unemployment rate surged to a near three-year high of 4.3% in July due to a significant slowdown in hiring.
In a separate speech on Thursday, President Joe Biden said: “The Fed lowering interest rates isn’t a declaration of victory. It’s a declaration of progress.”
He added at the Economic Club of Washington DC that it is a signal the US has entered a new phrase of recovery, though stressing there remains more work to be done.
Their comments came after Republican presidential nominee Donald Trump charged on Wednesday that the Fed’s decision was either a response to a “very bad” economy, or it had been “playing politics.”
Some economists agree that the rate cut might help the Democrats. According to the news analysis of the Washington Post on September 18, 2024, Mark Zandi, chief economist at Moody’s Analytics said, “The rate cut, which will be the start of a series of rate cuts, is an economic tailwind behind the Harris campaign for sure.” Mark Zandi added that “It’s not just about the symbolism — it’s also about the real effects. It’s really going to support the economy.”
Lower interest rates bring down the cost of borrowing and could be seen as beneficial to the White House administration ahead of November’s presidential election – with vice-president Kamala Harris the Democratic nominee.
But Fed chair Jerome Powell stressed after announcing the rate reduction: “We’re not serving any politician, any political figure, any cause, any issue.”
Biden said in his speech that the Fed’s independence has served the country well.
Federal Reserve Chair Jerome Powell emphasized the importance of the independence of the Fed on on July 9, 2024. He stated that independence is a proven and politically popular means to achieve the best possible outcomes for the U.S. economy. A key aspect of independence is that it provides the Fed with the space to make difficult choices when it comes to managing inflation.
On Thursday, Yellen also defended tariffs that the Biden’s administration recently hiked on Chinese goods, ranging from electric vehicles to batteries.
“These are areas where China has enormous excess capacity. We’ve made a conscious decision that in the area of clean energy, we want to develop this as an industry in the US,” she said.
“That’s not to say we want to do everything entirely ourselves,” Yellen said. “But we really want to reduce our dependence on China.”
