US Treasury: "Inflation Eases with Cooling Employment" ... Pressure on Companies to Reduce Profits

Janet Yellen Bloomberg Interview
"Cooling Without Labor Market Pain"
Also Calls on Companies to Help Ease Inflation
"Corporate Margins Are High... No Need to Curb Wage Increases"

U.S. Treasury Secretary Janet Yellen diagnosed that inflationary pressures in the United States are easing due to a cooling labor market. She also expressed confidence that the inflation target can be achieved while maintaining the unemployment rate. However, Secretary Yellen indirectly pressured companies to restrain price increases on products and services to reduce profit margins. This is interpreted as a call to contribute to easing inflation, but some analysts see it as a statement made with President Joe Biden’s upcoming re-election campaign in mind.

[Image source=Yonhap News]

On the 18th (local time), during an interview with Bloomberg News in India, where the G20 Finance Ministers and Central Bank Governors meeting was held, Secretary Yellen said, "The intensity of labor demand is calming down," and assessed that "the labor market is cooling without significant pain." She explained, "Except for tech companies, there is no active trend of workforce reduction," adding, "It’s just that the intensity of hiring has somewhat weakened."

As demand in the U.S. labor market has eased, the consumer price index (CPI) for June also showed stability. Last month, the CPI rose 3.0% year-over-year, falling short of market expectations (3.1%) and marking the lowest level in two years and three months.

Secretary Yellen cited the cooling of the labor market along with declines in housing and used car prices as factors slowing the rise in inflation. She said, "The contribution of housing prices has decreased, and there is evidence it will decline further," adding, "The used car market contributed significantly. With inventory building up and improvements in the automotive supply chain, I believe this will continue to work in our favor."

Secretary Yellen has consistently maintained the position that inflation can be brought back to the Federal Reserve’s target of 2% without a rise in unemployment. Some have criticized this as excessive optimism. However, despite the slowdown in U.S. inflation last month, the unemployment rate remained at a robust 3.6%, the lowest in about 50 years, indicating strong employment and easing inflation simultaneously. On the 17th, Goldman Sachs lowered the probability of a recession from 25% to 20%. JP Morgan also assessed that "the path to a soft landing has become somewhat wider." Secretary Yellen diagnosed that although China’s economic slowdown has a negative impact, the U.S. is avoiding a recession.

However, Secretary Yellen warned against excessive optimism until price stability is confirmed as a trend. She urged companies to contribute to easing inflation by reducing profits rather than suppressing wage increases. Earlier, foreign media such as The Wall Street Journal (WSJ) pointed out that some companies are raising product prices faster than the rate of cost increases, further fueling inflation.

She said, "Margins are quite high," but emphasized, "I don’t want to say that raising wages cannot bring down inflation." This appears to be a subtle pressure on companies to contribute to easing inflation by lowering product price increases instead of suppressing wage growth. Last week, Brianne Raynal, Chair of the U.S. White House National Economic Council (NEC), directly urged companies to "lower price increases." Major foreign media have interpreted these remarks as moves mindful of votes ahead of President Joe Biden’s re-election bid next year.

This content was produced with the assistance of AI translation services.