US treasury secretary calls for 'recession remedies'

US Treasury Secretary Janet Yellen on Thursday warned that the US and global economy are likely in for more shocks. She called for "recession remedies" that help countries increase economic resilience. 

Yellen said that inevitable "large negative shocks", such as the global pandemic and Russia-Ukraine war, may lead to economic downturns that are "likely to continue to challenge the economy". She suggested policymakers deal with that possibility and trend as soon as possible.

Yellen spoke at an event titled "Recession remedies: Lessons learned from the US economic policy response to COVID-19" that was hosted by the Brookings Institution.

"Countries will fare better if their economies are more resilient and less fragile. Improved understanding of breaks in supply chains, increases in commodity prices, bursting of asset bubbles, and labor and productivity shocks can help policymakers implement reforms that bolster our economic resilience," said Yellen. 

The US GDP for the first quarter of 2022 fell at a 1.4 percent annualized rate, according to a report released Thursday by the Commerce Department's US Bureau of Economic Analysis (BEA).

The number was far below the market's expectations of growth of 1 percent and the 6.9 percent growth in the fourth quarter of 2021. 

Adjusted for inflation, US GDP fell by 0.4 percent from one year earlier, marking the weakest quarter for the economy since April 2020, in the early days of the COVID-19 pandemic.

Yellen defended the Biden administration's 2021 spending package, mainly referring to the $1.9 trillion American Rescue Plan (ARP). The ARP allocated funds to households, businesses and local governments to help them counteract the economic and health effects of the pandemic.

Critics of the plan said it helped fuel the highest increase in inflation in 40 years. 

The Consumer Price Index (CPI) rose 8.5 percent year-over-year in March, the highest increase since December 1981. 

The ARP and two major rescue packages totaling almost $3 trillion under the Trump administration in 2020 pumped large amounts of funds into the economy.

Yellen said the ARP "played a central role in driving strong growth throughout 2021". However, she avoided the topic of inflation, which has been affecting Americans' daily lives and making economic recovery more challenging. 

Inflation also poses a significant threat to the Democrats as well as the Biden administration in November's midterm elections.

A Gallup survey released Thursday showed that a record 32 percent of Americans said inflation was their top household financial problem. Forty-six percent rated their finances positively, down from 57 percent last year.

The quarterly data from the BEA report also suggested that the GDP contraction was largely due to two components: inventories and international trade.

Yellen said it was worth considering taking steps to lower US tariffs on Chinese goods for "desirable effects" on inflation, during an interview with Bloomberg TV on April 22.

A spokesperson for China's Ministry of Commerce said Thursday that the US' unilateral tariffs are not good for China and the US, nor the world.

In the current inflationary environment, the US' removal of tariffs on China is in the fundamental interest of American enterprises and consumers, the spokesperson said.

Yellen also mentioned that the US should modernize the unemployment insurance system to make assistance more readily available when future recessions lead to workers losing jobs.

"Every recession in recent decades has reinforced the need for a flexible, automatic response. Well-designed automatic stabilizers are the best remedy," said Yellen.

Wendy Edelberg, the director of the Hamilton Project, an economic policy initiative of the Brookings Institution, said that the recession remedies should be "more targeted" for better effect.

"We can do a much better job of calibrating the size and the timing of a fiscal response in the future," said Edelberg. "There is a lot of work to be done urgently now for policymakers. Fix the roof while the sun shines."