Yellen says US GDP is a “good, solid number” and may keep bond yields high

Yellen says US GDP is a “good, solid number” and may keep bond yields high

US Treasury Secretary Janet Yellen speaks at a press conference during the G20 meeting in Gandhinagar

US Treasury Secretary Janet Yellen speaks at a news conference during the G20 finance ministers and central bank governors meeting in Gandhinagar, India, July 16, 2023. REUTERS/Amit Dave // ​​File Image Get License Rights

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said on Thursday that the U.S. economy’s growth in the third quarter of about 5 percent is a “good solid number” that indicates a soft landing for the U.S. economy but could help sustain longer-term bonds. High yield.

“It’s a good solid number and it shows that the economy is in good shape,” Yellen said in a live interview with Bloomberg. “What we have looks like a soft landing.”

The Commerce Department said U.S. gross domestic product grew at its fastest pace in nearly two years, defying warnings of a recession as rising wages in a tight labor market fueled increased consumer spending and restocked business inventories.

Yellen said the recent sharp rise in long-term bond yields reflects confidence in the US economy and expectations that interest rates will be higher for longer as a result.

Yellen, in a televised interview with Bloomberg, said it is also possible that yields on longer-term bonds will decline in the coming years, as structural conditions for a long-term decline in real interest rates linked to US demographics remain in place.

“It is entirely possible that we will see long-term yields decline, but no one knows for sure,” Yellen said. “I see rising yields as certainly an important reflection of a stronger economy.”

She rejected suggestions that the rise in bond yields might be due to concerns about rising US deficits or concerns about a recession.

The Treasury Department on Friday reported a $1.7 trillion federal budget deficit for fiscal 2023, the largest outside the COVID-19 pandemic years, with revenues falling and Social Security, Medicare and interest costs rising sharply.

Yellen said the US debt servicing burden would be “more of a challenge if the interest rate path remains higher.”

It emphasized that the federal government’s real interest rate costs remained close to 1% of GDP, a manageable level.

She added that President Joe Biden’s proposed fiscal sustainability measure, including higher taxes on the wealthy that would reduce the deficit by $2.5 trillion over a decade, would keep debt costs under control, at “well below” 2%. Of the gross domestic product.

“The higher the path of interest rates goes, the more we have to do” in terms of reducing the deficit, she added.

(Additional reporting by David Lauder and Daniel Burns – Prepared by Muhammad for the Arabic Bulletin – Prepared by Muhammad for the Arabic Bulletin) Editing by Franklin Paul and Jonathan Oatis

Our Standards: The Thomson Reuters Trust Principles.

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