By David Lawder
BENGALURU, Feb 25 (Reuters) - U.S. Treasury Secretary
Janet Yellen told Reuters on Saturday that new U.S. data showing
inflation jumped unexpectedly in January signals that the fight
against inflation "is not a straight line" and more work is
needed.
In an interview with Reuters at a G20 finance leaders
meeting in India, Yellen rejected arguments from some economists
that a recession or significantly higher unemployment was needed
for the Federal Reserve to win its inflation fight, sticking to
her view that inflation still can be brought down while
maintaining a strong labor market.
The strongest U.S. consumer spending data in nearly two
years on Friday showed that the Fed's preferred measure of
inflation, the personal consumption expenditures price index
(PCE), jumped unexpectedly in January, calling into question
whether the Fed remains behind in its inflation fight.
Revisions to prior data showed that previous disinflation
was milder than previously reported, and that data added to
financial market fears that the Federal Reserve could continue
raising interest rates into summer.
"I think this report showed that it's not going to be a
straight line - disinflation is not a straight line," Yellen
said, adding that inflation "remains a problem."
"It’s one read, but core inflation still remains at a level
that's above what's consistent with the Fed’s objective. So,
there's more work to be done," Yellen added.
But she said that inflation has still broadly come down over
the past year and that trend should continue, because housing
rental contracts were still adjusting to lower levels compared
to their pandemic-era peaks.
"We see reasons for, in coming months, further declines in
inflation, especially because of the importance of shelter in
the overall indices," she said.
RECESSION NOT NECESSARY
A new study by three prominent economists released on Friday
also suggested that the Fed would need a recession or
significantly higher unemployment to win its inflation fight.
The authors, including J.P. Morgan chief economist Michael
Feroli, Columbia Business School professor Frederic Mishkin and
Brandeis International Business School professor Stephen
Cecchetti, found that in 16 past instances of central
bank-engineered disinflation, none occurred without a recession.
"I don’t accept that as a general statement that always has
to be true," Yellen said, joining pushback from Fed officials
against the study.
She said sometimes recessions are necessary to bring
inflation down, such as in the 1970s when there was a strong
wage-price spiral.
"But I believe that is not the situation now," Yellen said.
"And I've said repeatedly and continue to believe that there is
a path to bringing inflation down that would be consistent with
maintaining a strong labor market."
(Reporting by David Lawder
Editing by Mark Potter)
david.lawder.thomsonreuters.com@reuters.net))
