According to Treasury Secretary Janet Yellen, the third quarter’s over 5% GDP growth in the United States is “a good strong number” that suggests a soft landing for the country’s economy but may also keep longer-dated bond rates high.
Yellen stated, “It’s a good strong number and shows the economy is doing well,” during a live Bloomberg interview. “What we have looks like a soft landing.”
The U.S. economy expanded at its quickest rate in over two years, according to the Commerce Department, dispelling predictions of a recession as rising salaries in a strong job market encouraged consumer spending and company inventory restocking.
According to Yellen, predictions that interest rates would remain higher for a longer period and the recent strong increase in long-term bond yields indicate confidence in the U.S. economy.
In a televised interview with Bloomberg, Yellen stated that there is a chance that longer-term bond yields may decrease in the upcoming years due to the persistence of structural factors that point to a long-term reduction in real interest rates that are tied to U.S. demographics.
“It’s perfectly possible that we will see longer-term yields come down, but nobody really knows for sure,” added Yellen. “I see the higher yields as certainly an important reflection of the stronger economy.”
She rejected ideas that concerns about a recession or growing U.S. deficits would be the cause of increased bond yields.
The federal budget deficit for fiscal 2023, as revealed by the Treasury on Friday, was $1.7 trillion, the highest since the COVID-19 epidemic years. The substantial increase in interest expenses and decline in income were the main causes of the deficit.
According to Yellen, the cost of repaying U.S. debt will be a “bigger challenge if the interest rate path stays higher.” She has insisted that the federal government’s real interest rate expenses have stayed within a reasonable range of 1% of GDP.
She said that debt payments will be controlled at “well below 2%” of GDP thanks to President Joe Biden’s planned fiscal sustainability package, which includes tax increases on the wealthiest that would reduce deficits by $2.5 trillion over ten years.
She stated, “The higher the interest rate path, the more that we need to do” to cut the deficit.
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