Yellen and Powell agree: US labor market weakening inflation push, inflation pressure may continue to ease

According to the Wise Finance APP, Janet Yellen, the US Treasury Secretary, pointed out at a hearing of the House Financial Services Committee in Washington that the current labor market is no longer the main driver of inflation in the US economy as it was in the early stages of the pandemic recovery. Her view coincides with earlier comments made by Jerome Powell, the Federal Reserve Chairman.

Yellen emphasized that during the rebound period after the pandemic, the job market was once very tight, but over time, we now have a stronger labor market whose driving force on inflation has significantly weakened. She believes that this shift occurred after a significant increase in labor supply.

In May, the US unemployment rate exceeded 4% for the first time in over two years, further confirming Yellen's argument. At another hearing on Tuesday, Powell told the Senate that recent employment data shows a significant cooling of the labor market, hinting that the Fed may consider rate cuts in the future.

Furthermore, when asked about the tax cuts implemented by the Trump administration in 2017, Yellen bluntly stated that these policies were "costly" and a "step back." She pointed out that these tax cuts were one of the reasons for the continuous increase in US national debt. Trump had promised to implement more such tax cuts if re-elected in the November election.

Yellen also expressed in-depth views on the issue of inflation. She noted that while rents and housing costs have led to higher-than-expected inflation rates in the US, consumer price pressures are expected to gradually decrease over time. Yellen believes that inflationary drivers, including supply chain issues and tight labor markets, have eased, which will help further reduce consumer prices.

Yellen said, "I believe that over time, the inflation rate will continue to decline. Although rents and housing costs still keep the inflation rate higher than our ideal level, the labor market has shown a strong recovery, and concerns about inflation are easing."

Lael Brainard, Chair of the White House National Economic Council and former Vice Chair of the Federal Reserve, also expressed optimism about the decline in inflation. She emphasized that the Biden administration is encouraged by the continued decline in inflation to the Fed's 2% target and will continue to take measures to alleviate the cost of living pressure on working families.

Brainard pointed out that the latest data shows an inflation rate of 2.6%, marking "significant progress" towards the target. She added that food prices have fallen, and during the "driving holiday" on July 4th, gasoline prices remained stable at around $3.50 per gallon.

However, Brainard also acknowledged that Americans still feel the pressure of living costs. She stated that President Biden will continue to push policies such as providing more affordable housing, slowing the rate of rent increases, and implementing tax relief policies to support first-time homebuyers.

It is worth mentioning that the US CPI data for June will be released at 20:30 Beijing time on Thursday. Considering that the US CPI data for May remained unchanged compared to the previous month, analysts expect that the CPI data for June, to be released later this week, may once again show weak growth, indicating that inflationary pressures are easing