Treasury Secretary Janet Yellen told Yahoo Finance that she does "not see the basis" for a US recession, and that she expects the Federal Reserve will hit its 2% inflation target next year — a faster pace than projected by central bank policy makers.

"I do expect inflation to come down, and as we get into next year I believe inflation will go back to the Fed’s 2% target," she said in an exclusive national interview Monday.

Fed officials last week released a median projection showing the Fed’s preferred measure of inflation would return to 2% in 2026. Fed officials also signaled just one rate cut this year as it takes longer than expected to get inflation down.

A big reason why Yellen expects inflation to cool further has to do with shelter costs, which have been running hot even as other prices ease. Rental prices of new apartments have stabilized, she said, and that will start to show up as more renters renew their contracts.

"That has been holding housing costs above normal levels," she said. "I feel pretty confident that is something that will come down over the next year."

Yellen on Monday announced some measures designed to help with high housing costs, including $100 million via a new fund over the next three years to support affordable housing financing.

US home prices hit a record high in May, as the median price of a previously owned US home climbed 5.8% from a year ago to $419,300, according to the National Association of Realtors.

"I don’t want to say there is a silver bullet" to the housing affordability issue, Yellen said. But "we want to use every tool we have."

She declined to say when she thought the Fed might offer some relief to the housing market by lowering interest rates, saying that it all depends on what the data shows policymakers.

But she said the Fed is well aware of the risks of waiting too long.

"They certainly don't want to cause a recession when it is unnecessary," she said.

Yellen does not see a severe downtown happening, noting that "I don’t see the basis for a recession in the outlook" and that "I think we have a good strong economy."

She was critical of a tax cuts passed during the administration of Donald Trump that lowered the corporate rate from 35% to 21%, saying that decision added to the deficit and "promised an investment boom that didn’t materialize."

It was responsible for "many of the problems now with our fiscal trajectory."

The Congressional Budget Office said last week that the federal budget deficit will reach an estimated $1.9 trillion in fiscal year 2024, up from the $1.5 trillion estimate released just four months ago.

Yellen said President Joe Biden's budget proposed an additional $3 trillion of defect reduction over next 10 years and that would be sufficient to hold debt-to-GDP "at current levels" — which she said was 100%.

Interest payments on the national debt, she said, are at "normal historical levels" even with high interest rates.

If things stay that way while the US engages in deficit reduction "I think we will be on a fiscally sustainable course."

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