Exclusive: Treasury Secretary Janet Yellen 9/26/24

Steve Liesman (0:00)

The New York Fed's 10th Annual US. Treasury Market Conference currently underway right here in Lower Manhattan. Steve Liesman is live.

Janet Yellen (0:07)

He's got a very special guest, Steve.

Steve Liesman (0:11)

David, thanks very much. I am here just a couple blocks away from you at the NICI with Treasury Secretary Janet Yellen. Thank you for joining us, Madam Secretary.

Janet Yellen (0:17)

My pleasure, thanks for the invitation.

Steve Liesman (0:19)

So we're here at the Treasury Conference, and they're gonna be talking about stability. You're gonna 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 the non-bank financial sector.

Janet Yellen (0:44)

Yes, so we wanna 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 materialize 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. A good deal of thought is going into how to shore up the liquidity, the access to the Fed's discount window for banks that do have uninsured deposits.

Steve Liesman (1:48)

Are you looking to Congress to guarantee deposits over $250,000? No, that's Congress' mandate now, not something that you can do really broadly under Treasury Federal Reserve mandate.

Janet Yellen (1:58)

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.

Steve Liesman (2:26)

If you don't mind, let's shift to talk about the economy. Some revisions to GDP this morning told 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?

Janet Yellen (2:49)

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 has 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 the lag, I think we'll see housing costs fall further, and that will take the Fed to its 2% target. So I've said for a long time, I always believed 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 suggests has happened.

Steve Liesman (4:17)

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 question here 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?

Janet Yellen (4:35)

Well, you do see in the material, in the comments of the Chairman and in the projections of the members, an 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. So, 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.