Yellen says economy on 'soft landing' path, Fed's policy rate will fall to neutral level

By Susan Heavey and David Lawder

WASHINGTON (Reuters) - U.S. Treasury Secretary Janet Yellen said on Thursday that labor market and inflation data suggest the U.S. economy is on a path to a "soft landing," but the "last mile" on taming inflation is bringing down housing costs.

Yellen told CNBC in a live interview that based on comments from Federal Reserve officials, the U.S. central bank's benchmark overnight interest rate will continue to decline to a neutral policy level.

"I always believed that there was a path to a soft landing, that it was possible to bring inflation down while maintaining a strong labor market, and to me, that's what the data suggests has happened," Yellen said.

She added that there was reason to believe that housing costs would also fall.

Yellen also said that U.S. deficit reduction was necessary to keep interest costs manageable over time, but added that the Biden administration believed it important to continue to invest in parts of the economy that would fuel future growth.

Regarding financial system stability, Yellen said banks were well-capitalized, but after turbulence over uninsured deposits erupted in 2023 that caused deposit runs in some banks, "a good deal of thought is going into how to shore up the liquidity, the access to the Fed's discount window for banks that do have uninsured deposits."

She said any changes to the limits on bank deposit insurance were decisions for Congress to make, but banking regulators were discussing ways to shore up quick access to liquidity when needed.

(Reporting by Susan Heavey and David Lawder; Writing by David Lawder; Editing by Chizu Nomiyama and Paul Simao)