Treasury Secretary Janet Yellen said the strong but cooling labor market is a key factor helping to slow inflation in the United States.

“The labor market’s cooling without there being any real distress associated with it,” Yellen told Bloomberg News in an interview Tuesday.

The U.S. labor market added 209,000 jobs in June, according to data from the latest jobs report, slightly lower than the average of 278,000 jobs added per month over the first six months of the year. That’s also well below the average of 399,000 jobs per month in 2022.

The cooling labor market suggests possible relief from sky-high inflation consumers have weathered for the past two years. Inflation ticked down to 3 percent annually in June, well below last year’s 9 percent peak.

Aside from sectors like tech that have experienced massive layoffs, Yellen said the Treasury is not seeing employers lay off more workers. “It’s just the intensity with which they’re trying to add to their workforce seems like it’s reduced somewhat,” she said.

In addition to shifts in the job market, Yellen said housing costs and vehicle prices are likely to play a role in keeping costs down.

The Treasury secretary called the falling price of used cars a “significant contributor” to slowing inflation. Used car prices dropped by 4.2 percent in June, according to the Manheim Used Vehicle Value Index, the largest monthly drop since the start of the coronavirus pandemic.

“Inventories are being rebuilt. The whole supply chain in autos is improving. So there’s reason to believe that we could get some continued benefit from that,” Yellen said.

She also alluded to the potential need to reduce corporate profit margins rather than wages to rein in rising prices.

“Profit margins are also quite high, and they have some cyclical dimension,” she said. “So, I don’t want to go so far as to say you couldn’t see inflation come down without further moderation in wages.”

Yet Yellen cautioned against undue optimism based on just “one month’s numbers.” 

In response to worse than forecasted economic data from China, Yellen said Monday that she does not expect a U.S. recession but acknowledged China’s slow growth could spill over into the global economy.

But the Treasury secretary identified other points for optimism in the consumer price data.

“Housing had a reduced contribution, and there’s every reason to believe that that will continue and come down further,” she said. “That’s an important thing that influences core inflation.”