U.S. Treasury's Yellen: inflation remains elevated but there are encouraging signs

FILE PHOTO: Annual Meetings of the International Monetary Fund and World Bank in Washington

By David Lawder and Kanishka Singh

SPRING HILL, Tenn./WASHINGTON (Reuters) - U.S. Treasury Secretary Janet Yellen said on Wednesday that while inflation remained elevated, there were encouraging signs that supply-demand mismatches were easing in many sectors of the economy.

"Over the past two years, we have worked successfully to ease supply chain pressures, and that includes funding pop-up container yards and moving several ports to 24/7 operations," Yellen said in remarks made at an Ultium Cells LLC electric vehicle battery plant under construction near Nashville.

An employment report last week showed U.S. job growth accelerated sharply in January while the unemployment rate hit a more than 53-1/2-year low of 3.4%, pointing to a tight labor market that could be a headache for the Federal Reserve in its battle against inflation.

Fed officials on Wednesday said more interest rate rises are on the cards as the U.S. central bank presses forward with its efforts to cool inflation, although none were ready to suggest that January's hot jobs report could push them back to a more aggressive monetary policy stance.

The Fed's decided last Wednesday to moderate the pace of what had been a historically aggressive rate hike campaign to reduce high inflation.

"It is true that interest rates have gone up and slowly, that raises the cost to the country and to the federal budget of interest on debt. So in that sense, it's a drag. Our future projections, have long assumed that interest rates would move back towards more normal levels," Yellen added on Wednesday.

Some investors believe signs of strength in the labor market make a recession less likely and increase the chances of a soft landing, in which the Fed tames inflation without pushing the economy into a recession.

Inflation, based on the Fed's preferred measure, is running at more than double the target.

(Reporting by David Lawder; writing by Kanishka Singh; editing by Rami Ayyub and Marguerita Choy)