Yellen cited potentially fraught conditions in Europe as members of the European Union wean off Russian oil shipments and mull the imposition of a price cap in response to the brutal invasion of Ukraine.
“It’s a risk and it’s a risk that we’re working on the price cap to try to address,” Yellen said during an appearance on CNN’s “State of the Union” on Sunday. “This winter, the European Union will cease, for the most part, buying Russian oil and in addition, they will ban the provision of services that enable Russia to ship oil by tanker. It is possible that could cause a spike in oil prices.”
“Our price cap proposal is designed to both lower Russian revenues that they use to support their economy and fight this illegal war while also maintaining Russian oil supplies to hold down global oil prices,” Yellen added.
After skyrocketing to an unprecedented national average of more than $5 per gallon in June, gas prices have dropped to $3.716 per gallon as of Monday, according to AAA data. Even after nearly three months of declines, prices are still higher than they were one year ago, when the average cost of a gallon of gas was $3.175.
Gas prices fell in recent months as oil prices sank in response to investor fears of a looming global recession.
While the European Union has enacted a ban on Russian seaborne oil imports that takes effect on December 5, Germany and other nations remain heavily reliant on those shipments to heat and light their homes. The standoff has triggered concerns of a European energy crisis that could rattle global prices.
“We’re not in a recession,” Yellen said. “The labor market is exceptionally strong, the unemployment rate extremely low. There are almost two job vacancies for every worker who’s looking for a job. We’ve had a historically fast recovery of the labor market, with around 10 million jobs created since President Biden took office.”
President Biden and other administration officials have repeatedly taken credit for falling gas prices, arguing releases from strategic reserves and other efforts alleviated pain for American motorists.
But another surge would provide fresh fodder for Republicans other critics who have questioned whether the administration’s victory lap was premature, given tenuous macroeconomic conditions related to the Russia-Ukraine war.
Yellen also reiterated her long-held view that the US economy is not in a recession despite two straight quarters of declines in GDP. The Biden cabinet member pointed to an “exceptionally strong” labor market as a sign of the economy’s health.
Nevertheless, Yellen acknowledged that a recession is “certainly a risk that we are monitoring.” She noted the Federal Reserve faces a difficult path to a so-called “soft landing,” or successfully lowering inflation without significant hits to the labor market or economic growth.
“The Fed is going to need great skill and also some good luck to achieve what we sometimes call a soft landing,” Yellen said.
“I believe there is a path to accomplishing that,” she added.