Apr 11, 2023 - Politics & Policy

First look: Yellen's cautious optimism on the economy

Treasury Secretary Janet Yellen speaks at the American Bankers Association summit in Washington on March 21. Photo: Drew Angerer/Getty Images

Treasury Secretary Janet Yellen is convinced the global economy is in better shape than some economists suggest, and is confident the world's finance ministers have the tools to fend off a steep slowdown.

  • That's the case she plans to make Tuesday at a news conference kicking off the annual spring meetings of the World Bank and the International Monetary Fund in Washington, Axios has learned.

Why it matters: Yellen's outlook contrasts with last October's gloomy economic forecasts by the IMF, which preceded the failure of Silicon Valley Bank and the collapse of Credit Suisse in Switzerland.

  • The Biden administration has remained cautiously optimistic about the world and U.S. economies, citing a robust American labor market and improving conditions in China as among the reasons to remain hopeful.
  • Yellen's glass-half-full approach isn't shared by IMF head Kristalina Georgieva.
  • Georgieva said last week that "growth remains weak by historical comparison," and separately told Politico's Ryan Heath that “something is going to go boom."

The big picture: The world’s finance ministers and central bankers are descending on Washington to discuss the best ways to respond to the lingering economic effects of the pandemic, the war in Ukraine, high interest rates and a banking system that looks more rickety than solid.

What they’re saying: “During the G20 in February, I said that the global economy was in a better place than many predicted last fall,” Yellen's prepared remarks say. “That basic picture remains largely unchanged.

  • “Prices of commodities like food and energy have stabilized. Supply chain pressures continue to ease,” she plans to say.
  • “In the United States, our labor market remains strong. Inflation remains too high, although we’ve seen welcome signs over the past half-year that inflation has moderated."

Yes, but: Yellen won't be all sunshine and rainbows. She'll also acknowledge the "downside risks" posed by Russia's war in Ukraine and the lingering effects of the pandemic.

The intrigue: Yellen — like Commerce Secretary Gina Raimondo and President Biden — is wary of too much pessimistic chatter about the economy. They are convinced there’s a danger of talking the economy into a recession.

  • Georgieva, a Bulgarian-born economist, is focusing more on the acute risks in the current political and financial landscape.
  • In doing so, she is giving cover to central banks to keep raising interest rates to fight inflation.

By the numbers: The IMF predicts that global growth will drop below 3% this year and then hover around that level for the next five years, the lowest medium-term growth forecast since 1990.

What we’re watching: This year's spring meetings will be the last dance for David Malpass, the World Bank president who plans to step down in June.

  • He will be replaced by Ajay Banga, who told Axios the world needs a massive investment from the private sector to adequately address poverty and climate change at the same time.
  • Yellen has endorsed reforms to the World Bank that she says could help it lend an additional $50 billion over the next decade. Before the pandemic, the bank was lending more than $40 billion a year.
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