US Secretary of the Treasury Janet Yellen sat down with Yahoo Finance Senior Reporter Jennifer Schonberger for an exclusive interview on Monday, June 24. Secretary Yellen addresses an array of topics, from housing affordability issues within the United States to inflation under the Federal Reserve's 2% inflation rate target.

"One of the pieces that has been keeping inflation above the Fed's target is housing costs. The prices rental prices for new apartments have stabilized and, in many parts of the country, come down," Yellen states. "But people who have existing contracts really only see changes in their rental prices when their contracts renew."

Like many other regulators, Yellen is monitoring incoming inflation data and employment prints before committing to any interest rate forecasts.

"They [Fed officials] certainly don't want to cause a recession when it's unnecessary. And that's the balancing act," Yellen tells Schonberger. "I think we've got a good, strong economy..."

Watch Yahoo Finance's full, exclusive interview with US Secretary of the Treasury Janet Yellen.

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This post was written by Luke Carberry Mogan.

Video Transcript

I want to ask you about your overall outlook for inflation.

Looks like it was stalling in the first quarter.

We've gotten some better readings here in the second quarter, namely that cooler May CPIR and we've got another inflation reading coming on Friday.

Do you expect inflation will fall at a faster rate as we go through the summer months and the rest of the year or is it going to continue to be sort of a slower slog?

Well, I do expect inflation to come down and as we get into next year, I believe that inflation will uh go back to uh the fed's 2% target.

But um there's month to month variation.

And um one of the pieces that has been keeping inflation above the fed's target is housing costs.

Um The prices re rental prices for new apartments have stabilized and in many parts of the country come down.

But people who have existing contracts really only see changes in their rental prices when their contracts renew.

And there has been a considerable run up since before the pandemic.

So it takes a while before.

Uh people who have existing rental contracts see current costs fully priced in and that's been holding um housing cost increases above normal levels.

I'm I feel pretty confident that that is something that will come down over the next year and keep moving inflation down and labor markets while very strong nationally are a little bit less tight than they were uh right in the aftermath of the pandemic.

So given your outlook for inflation, you say you do expect we'll hit 2% by next year.

And the fact that Americans are grappling with high home costs, part of that is mortgage rates near 40 year highs.

When do you think Americans could see interest rates come down?

Well, I'm not going to speculate on what um the fed is gonna deem appropriate, they set interest rates in order to make sure inflation comes down.

But also to um keep the economy uh operating near full employment and their projections suggest that most members of the committee um envision that there will be some interest rate cuts later this year or next year.

But it's um really depends on how the data unfolds with respect to the economy.

If rates are held at current levels through December, do we risk sowing the seeds of a recession?

Well, that's something that the FED will be looking at.

As I said, the fed wants inflation to come down and they've made clear that when they gain confidence that we're on a stable downward trend that they think it will be appropriate to cut rates.

They certainly don't want to cause a recession when it's unnecessary.

And that's the balancing act.

You don't think a recession is in sight right now.

I think we've got a good, strong economy growth is, you know, we grew very rapidly after the pandemic, unemployment was very high, rapid growth was needed and appropriate to get people back to work.

Um, once you have an economy with a, an unemployment rate that's 4% or below, which is what we've had for, you know, well, over, uh, a year or two years, I mean, this is a 50 year, a record in terms of the strength of the labor market, you expect somewhat slower growth in the economy.

But, um, households, consumer spending remains healthy.

Investment's been strong.

I don't see, uh, the basis really for a recession in the outlook.