US seeks 'remedies' as GDP shrinks 1.4%

US Treasury Secretary Janet Yellen warned on Thursday that the economies of the United States and the world are likely in for more shocks, as the country's GDP shrank at an annualized rate of 1.4 percent in the first quarter of this year.

She called for "recession remedies" that will help countries increase economic resilience.

Yellen said inevitable "large negative shocks", such as the COVID-19 pandemic and Russia-Ukraine conflict, may lead to economic downturns that are "likely to continue to challenge the economy". She suggested that policymakers deal with that possibility and trend as soon as possible.

Yellen made these remarks while speaking at a Recession Remedies event 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," Yellen said.

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

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

Yellen defended the Joe Biden administration's 2021 spending package, mainly referring to the $1.9 trillion American Rescue Plan, or 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 rose 8.5 percent year-over-year in March, the highest increase since December 1981.

Inflation concerns

"We're gonna have a recession. Nothing is certain in economic life, but that's pretty certain," Gary Hufbauer, a former US Treasury official and nonresident senior fellow at the Peterson Institute for International Economics, told Xinhua.

Hufbauer said there's no historical experience that suggests with such high inflation, the Federal Reserve is able to bring inflation down to its 2-percent goal without a recession.

A Gallup survey released on Thursday showed that a record 32 percent of people in the US 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 GDP contraction was largely due to inventories and international trade.

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

The US-China Business Council said on Wednesday that there is no reason to maintain the additional tariffs on Chinese products imposed during Trump's presidency and eliminating them will lower prices for many consumer goods amid high inflation.

"Our members have opposed the tariffs since they were introduced during the Trump administration," the USCBC said. "We pointed out that the tariffs were an unnecessary tax on US consumers and businesses for no good policy purpose."

Wendy Edelberg, director of the Brookings Institution's economic policy initiative The Hamilton Project, said 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," Edelberg said. "Fix the roof while the sun shines."

Xinhua contributed to this story.