SOTS+ Treasury Secretary Janet Yellen 12/13/23

SPEAKER_1 (0:00)

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Sara Eisen (0:31)

I am here at the Treasury Department with the Treasury Secretary, Janet Yellen, for an exclusive. It's good to see you again.

Janet Yellen (0:36)

Thanks so much, Sara. Thanks for the invitation.

Sara Eisen (0:38)

Thank you for taking the time.

So, 2023, I think the big surprise was the US economy's resilience. You've been in the soft landing camp for a while, but this time last year, how many people were predicting recession?

Janet Yellen (0:51)

Well, I do remember that there were dire predictions that a recession was utterly unavoidable, but I have to say, I always felt what I said was, I believe there's a path by which the economy could achieve a soft landing, inflation coming down with the labor market remaining strong, and it was not necessary to have a period of high inflation, high unemployment to bring inflation down.

I thought that because I never felt that inflationary expectations had been permanently dislodged in a way that would give rise to an ongoing wage price spiral that makes inflation self-perpetuating. What I thought was that there were major disturbances in many product markets because of the pandemic and supply chain issues connected with it and that the labor market had also experienced a severe shock with an unprecedented number of people losing jobs. When the economy started recovering rapidly, they had to get back into good matches with new employers, and this was disruptive.

It led to job market pressures. We saw job vacancies, job openings were enormously high, and it took a while for people to settle down into new jobs. The quit rate was high. There was just a lot of turbulence in the job market that's really settled down. As that's happened, quit rates and job openings have fallen back to normal, and we really haven't seen any significant uptick at all. In layoffs, the labor market remains strong, and inflation has come down meaningfully. We're not all the way there. There's further to go for the Fed to achieve its 2% objective, but I think we're on a path, and you can see a consistent pattern in inflation coming down over time. So, I think this is a soft landing, and I, you know, this is not to say that Americans are feeling great about the economy.

Sara Eisen (3:23)

You don't get a lot of credit for it in the administration. Less than a third of voters, according to a new Wall Street Journal poll, thinks that Bidenomics is working. Why is that?

Janet Yellen (3:31)

Although I thought it was a hopeful sign that in the recent preliminary Michigan survey, you do see an uptick in consumer confidence. Consumers are beginning to understand that inflation is coming down. And although wage growth has moderated some, it remains healthy, and inflation has come down, and now real earnings are going up. And so gradually over time, I think people will feel better about the economy. Now, the level of prices in some cases is higher than it was before the pandemic. And people notice that. They notice their bills, certain bills are higher. Rent would be a very good example. Apartment rentals, for example. Why is it not coming down?

Well, it's stopped going up, but we did have very big changes in the way people live and work during the pandemic, and I think it gave rise to pressures on real estate prices, both rentals and house prices went up.

So, you know, young people who are, have aspired to own a home, who are renting, they're seeing their monthly rent go up, although new rental prices have stabilized. If you're in the middle of a rental contract and it renews, you're likely to see the rent adjust up to current market levels. And that's a big expense and people feel that. But I think we're in the path, and some important prices, well, gas prices are now way down.

Number of states where it's a gallon is running at under $3 a gallon, which is great news for consumers. We saw egg prices utterly skyrocket, mainly because of the avian flu. They've come down back toward pre-pandemic levels, but still...

Sara Eisen (5:45)

But elevated.

Janet Yellen (5:46)

Yes.

Sara Eisen (5:46)

So when do you think the Fed will achieve its 2% inflation target? When does that happen?

Janet Yellen (5:51)