Squawk on the Street
Exclusive: Treasury Secretary Janet Yellen 9/26/24
Your best hotel in Bethesda has every guest raving. How do you make every hotel like your best hotel? Your best plant in Atlanta employs 4,500 people. How do you get 4,500 people working at peak efficiency? Your best data center in Redmond is optimized every drop of water. How do you make every data center the pinnacle of sustainability? The answer is EcoLab. EcoLab, bringing out the best in your business. Building a portfolio with Fidelity Basket Profolios is kind of like making a sandwich. It's as simple as picking your stocks and ETFs, sort of like your meats and other topics, and managing it as one big, juicy investment. That's pretty good. Learn more at Fidelity.com/baskets. Investing involves risks including risk of loss, Fidelity Brokers Services LLC, member and YSC SIPC. The New York Fed's 10th annual U.S. Treasury Market Conference currently underway right here in Lower Manhattan. Steve Leisman is live, he's got a very special guest, Steve. David, thanks very much. I am here just a couple of blocks away from you at the Nicie with Treasury Secretary Janet Yellen. Thank you for joining us, Madam Secretary. My pleasure, thanks for the invitation. So we're here at the Treasury Conference and we're going to talk, they're going to be talking about stability. You're going to give a speech soon about stability in the market. Some things have seemed to work out, right? Are we past the period of time where you have concerns about the balance sheets of banks and their exposure to high interest rates? And then what are the risks that you're concerned about? You mentioned in your speech, stable coins, you mentioned non-bank financial sector. Yes, so we want to make sure through our work with the financial stability oversight council and more broadly that we have a well-functioning financial system that can contribute to growth. With respect to the banking system, I believe it's well capitalized and we did see risk materialized a year ago. I think we've dealt with those successfully. It did show, though, that a vulnerability is a high level of uninsured deposits in parts of the banking system and inadequate access to the liquidity that's needed to be able to address deposit runs. The deposit runs were large and very rapid. And so a good deal of thought is going into how to shore up the liquidity, the access to the FEDS discount window for banks that do have uninsured deposits. Are you looking to Congress to guarantee deposits over $250,000? That's Congress's mandate, not something that you can do really broadly under Treasury Federal Reserve mandate. So I really think this is up to Congress. The FDIC issued a report, discussed some possibilities. This is for Congress, but in terms of access to liquidity, better functioning of the discount window, making sure that banks are prepared to borrow from the discount window quickly. This is something that the banking regulators are working on and discussing. Let's shift to talk about the economy, some revisions to GDP this morning. Pold us we didn't have two negative quarters in 2022. Generally upward, gross domestic income came towards GDP, which is obviously a kind of thing only for the wonks in all of us here. Broadly, do you see us heading towards a soft landing and do you feel like inflation is sufficiently under control? Well, I do. I think that all of the indications we're seeing both in the labor market with respect to inflation and with respect to growth suggest we're on a path to a soft landing. And of course there are always risks. We are seeing a less tight labor market and some growing, a little bit more slack in the labor market that we had previously. The unemployment rate is drifted up, still low by historical standards. But hopefully this is going to turn out to be a stable situation with the Fed supporting continued strength in the labor market and inflation has come down considerably. The last mile on inflation involves housing costs and I believe there's good reason to think that they will fall market rents have declined considerably and with a lag. I think we'll see housing cost fall further and they'll take the Fed to its 2% target. So I've said for a long time, I always believe 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 suggest has happened. Support for this program is provided by Chevron. The anchor offshore platform is utilizing breakthrough technology to enable us to produce oil and natural gas in the U.S. Gulf of Mexico at pressures up to 20,000 PSI, a new industry benchmark. Anchor is part of Chevron's plan to produce 300,000 net barrels of oil equivalent per day by 2026 in the U.S. Gulf of Mexico, home to some of our lowest carbon intensity producing operations. That's Energy in Progress. Visit chevron.com/anchor. My dad works in B2B marketing. He came by my school for career day and said he was a big row as man. Then he told everyone how much he loved calculating his return on ad spend. My friends still laughing me to this day. Not everyone gets B2B. But with LinkedIn, you'll be able to reach people who do. Get a $100 credit on your next ad campaign. Go to linkedin.com/results to claim your credit. That's linkedin.com/results. Terms and conditions apply. LinkedIn, the place to be, to be. Earning your degree online doesn't mean you have to go about it alone. At Capelli University, we're here to support you when you're ready. From enrollment counselors who get to know you and your goals to academic coaches who can help you form a plan to stay on track, we care about your success and are dedicated to helping you pursue your goals. Going back to school is a big step, but having support at every step of your academic journey can make a big difference. Imagine your future differently at Capella.edu. Okay, so I know you think a lot about the Fed, but I also know you don't talk a lot about the Fed, so I've written a carefully crafted questionnaire to see if you might respond to it. When you think about the level of rates now relative to the progress on inflation, do you think that rates at the Fed are too high? Well, you do see in the material in the comments of the chairman and in the projections of the members in expectation that rates will come down more and that short rates are currently above neutral. And when you have an economy that's growing at potential, that's operating at full employment with inflation in the vicinity of the Fed's target, that suggests that a more neutral stance of policy is appropriate. The Fed has had a policy of running a tight policy to bring inflation down. We've seen considerable progress on that front. And yes, I believe over time, if we stay on that path, that rates will decline toward neutral. Do you have an opinion about the pace at which they ought to get there? That's getting into details that clearly it's up to the Fed to decide that. You talked about potential growth and something that has been troubling to many market observers, which is that we're at or above potential. We're at or near many estimates of full employment, yet we're running these very large deficits. Can you explain why that is and how the administration justifies these large deficits with the economy doing as well as it seems to be doing? Well, I think the metric we should be looking at is to decide on the sustainability of fiscal policy is real net interest costs as a share of GDP. And historically, that's been under 2%. It is under 2%. Over time, if we don't do further deficit reduction, it would be likely to drift up. So I think looking forward, it will be necessary to get deficits down and to do some deficit reduction in order to keep the interest costs manageable. The President Biden and Vice President Harris presented a fiscal 2025 budget that has considerable deficit reduction. I get that in my $3 trillion over the next 10 years. I've seen that. But if you can't get the revenue, isn't it prudent not to do the spending? Well, I think it's important to be on a fiscally sustainable course. And the approach that our administration has taken is that we want to be able to invest in ways that will boost growth and do so in an equitable way, whether it's investing in industries of the future, in places that haven't had opportunity, addressing housing, child care, things that have boosted the cost of living and made life very difficult for middle class families. So we want to invest in the country and be able to do that, afford that by raising enough revenue to be able to pay for those things. And we've made some progress. We do have now a corporate alternative minimum tax that went into effect. We've started to bring down the cost of pharmaceuticals, which both lowers the cost of living for families and also saves the government considerable amounts of money. And importantly, we've boosted the resources of the internal revenue service so they can both improve customer service. And I think anybody who's dealt with the IRS over the last year or year or two can see that, but also begin to close the tax gap, which is the enormous gap between the revenues that are being collected and what was estimated to be due. All of that said, Madam Secretary, do you regret over the course of the pandemic and its aftermath, given what happened to inflation, not having reduced spending so that you weren't adding to that inflation. Look, I think if the, if the exit of the administration, we felt that the largest single risk facing our economy was that people would not get back to work in a timely way. And we could be faced with a real crisis of high unemployment with substantial scarring. And we put in place with Congress, a program that was meant to address that risk. Every developed country saw a surge in inflation. Ours was no worse than other countries experienced inflation has come down more quickly and we've had a more robust recovery than other countries. So there's no question that inflation has been a problem. It remains the top priority of our administration to address the high cost of living that burdens households. But inflation now is down considerably and real wages, wages adjusted for inflation arising so that families are getting ahead. With the Wells Fargo Active Cash Credit Card, you can earn unlimited 2% cash rewards on purchases you want and purchases you need. That means you earn 2% cash rewards on what you want, like season tickets to watch your favorite team and 2% cash rewards on what you need, like paying for parking. That's the beauty of the Active Cash Credit Card. It's ready when you are with unlimited 2% cash rewards. The Wells Fargo Active Cash Credit Card, that's real life ready. Terms apply. Learn more at Wells Fargo dot com slash Active Cash. At EverNorth Health Services, we believe costs shouldn't get in the way of life-changing care. And we're doing everything in our power to make it possible. Behavioral health solutions that also keep your projections at their best, it's possible. Pharmacy benefits that benefit your bottom line, it's possible. Complex specialty care that cares about your ROI, it's possible because we're already doing it. All while saving businesses billions, that's wonder made possible. Learn more at EverNorth dot com slash wonder. You mentioned in your speech the risk of China and the importance of having a positive relationship with China or at least building on that relationship. Yet over the course of this administration, you have kept the tariffs put in place by former President Trump and you've actually added to them. Do you believe that that relationship has gotten closer? I do believe it's gotten closer. I think we've deepened our ties with China. We've found ways to constructively discuss and address our differences. I don't want to say that there will be some miracle in which we see China address all of our concerns quickly, but we have had productive discussions of our differences so that we better understand one another. And we're cooperating in areas that the world needs us to work together. Financial stability is one of these areas. And, for example, if we were to, God forbid, see a globally systemically important bank, a GSIB fail that has operations in China and the US and Europe, we would need to be able to cooperate. And we were working closely with financial authorities in China doing tabletop exercises and deepening our ties so that we would be able to work constructively and quickly to manage a financial crisis that involved the banks in the financial system in our countries. Madam Secretary, just a last question. I've been interviewing treasure checkers since the 1990s and I've never not asked about the dollar. When you wake up in the morning, do you look at the dollar? How do you think about the dollar? It's weakened recently with federal reserve rate cuts. Do you think about it in a range? How much concern do you have for the value of the dollar versus other currencies? So, at the beginning of our administration, I tried to articulate what the US dollar policy is. And what I said is that we believe in a market-based currency that the value of the dollar should be determined in markets that we should run a strong macroeconomic policy consistent with macroeconomic stability, price stability and full employment in the United States and allowed the dollar to adjust as necessary to accomplish those goals. So, of course, I watch the value of the dollar, but it's been a long time since the United States has intervened in currency markets, can imagine situations where markets are so disorderly that intervention is called for. As a normal matter, the dollar is determined by markets and interest rate differentials globally have been important drivers of that. Do we need a central bank digital currency? If this is something the Fed has been looking at, we've been studying as well. There are pros and cons and we're also looking at alternative approaches. We have a good new fast payment system. We're looking at ways to facilitate and reduce the frictions and cross-border payments. There are many international discussions taking place about ways to improve the efficiency of the payments system. And it could one day involve a central bank digital currency, but there are other approaches as well. Adam, we're going to take a more time and agree that thank you very much for joining us. My pleasure. And giving us your time. Thanks. Imagine earning a degree that prepares you with real skills for the real world. Capella University's programs teach skills relevant to your career so you can apply what you learn right away. Learn how Capella can make a difference in your life at Capella.edu. See you!