Yellen positive about US outlook despite risks from China’s slump.

Yellen positive about US outlook despite risks from China's slump.

The Impact of China’s Economic Slowdown on the US: Yellen Remains Upbeat

China’s Economic Snags

Treasury Secretary Janet Yellen has expressed concerns about the potential risks for the United States arising from China’s economic troubles. However, she remains optimistic about the overall health of the American economy. Yellen emphasized that China’s slowdown would have a more significant impact on its Asian neighbors but acknowledged that there would be some spillover effects on the United States.

Despite these concerns, Yellen maintains that the US labor market remains robust, and inflation trends are heading downward following the Federal Reserve’s 11 interest rate hikes. In July, the Consumer Price Index rose by 3.2% year over year, up from June’s 3.0% pace, indicating a slight uptick in inflation. However, it is important to note that the gauge has been steadily declining for the past twelve months.

“We’re seeing a slowdown in [US] growth, but growth that remains healthy, a job market that is very strong, and inflation that is coming down,” Yellen reassured. It is worth mentioning that despite surveys showing a significant level of pessimism among Americans about the overall state of the economy, when asked about their personal financial situation, 70% or more respondents express positive sentiment.

President Joe Biden recently described China’s economy as a “ticking time bomb” due to its growth and demographic challenges. Yellen’s comments align with his assessment, highlighting China’s post-pandemic downturn, including deflation, declining trade and foreign investment, a shaky housing market, and an aging population.

“Before the pandemic, China was growing at about 6%, and now it’s struggling to recover,” said David Dollar, a senior fellow at the Brookings Institution. “Consumption really didn’t hold up coming out of the lockdown. The main components of GDP on the demand side — consumption, investment, net exports — they all have serious problems right now.”

While the situation in China poses risks for the US, Yellen remains confident in America’s ability to weather these challenges. She emphasized that the US economy continues to show strength, with a robust job market and decreasing inflation. The positive sentiment expressed by individuals regarding their personal financial situations also highlights the resilience and optimism within the American populace.

In conclusion, Yellen’s remarks indicate that China’s economic slowdown presents some risks to the United States. However, she maintains a positive outlook on the overall prospects of the US economy. It is important to monitor the developments in China closely, as its economic troubles may have spillover effects globally. Nevertheless, for now, Yellen’s optimism in the face of these challenges provides a glimmer of hope for the American economy and its future growth.