Yellen States Economy is on ‘Soft Landing’ Path, Fed’s Policy Rate Expected to Reach Neutral Level

By Susan Heavey and David Lawder

WASHINGTON – U.S. Treasury Secretary Janet Yellen stated on Thursday that recent labor market and inflation indicators imply the U.S. economy is headed toward a "soft landing." However, she noted that addressing housing costs remains a significant challenge in the effort to control inflation.

In a live interview with CNBC, Yellen mentioned insights from Federal Reserve officials, indicating that the central bank’s key overnight interest rate is expected to continue decreasing towards a neutral policy level.

"I have always believed that a soft landing is achievable, where inflation can be reduced while keeping the labor market robust, and the data seems to support that view," Yellen explained. She expressed optimism that housing expenses would also decrease.

Yellen emphasized the importance of U.S. deficit reduction to manage long-term interest costs, while also highlighting the Biden administration’s commitment to investing in sectors of the economy that promote future growth.

Concerning financial system stability, Yellen noted that banks are currently well-capitalized. However, following issues related to uninsured deposits in 2023 that led to deposit runs at some banks, she mentioned that considerable thought is being given to strengthening liquidity and access to the Federal Reserve’s discount window for banks with uninsured deposits.

While any modifications to bank deposit insurance limits are a matter for Congress, Yellen indicated that banking regulators are actively discussing measures to enhance rapid access to liquidity when necessary.