Yellen on how the US can bring down inflation while maintaining a strong job market
Last month’s upheaval within the banking sector hasn’t pushed America off course from achieving a soft landing, Treasury Secretary Janet Yellen told CNN’s Fareed Zakaria in an exclusive interview Friday.
“I do think there’s a path to bring down inflation while maintaining what I think all of us would regard is a strong labor market,” Yellen said. “And the evidence that I’m seeing suggests we are on that path.”
She added: “Are there risks? Of course. I don’t want to downplay the risks here, but I do think that’s possible.”
Yellen cited that the factors that have pushed up inflation go well beyond the tightness seen in the US labor market, notably Russia’s war in Ukraine, which raised food and energy prices; and pandemic-era supply chain disruptions, which caused key material shortages that gummed up critical pieces of the economy, such as the auto industry.
“We’re seeing those supply chain bottlenecks that boosted inflation, they’re beginning to resolve,” she said. “We had big shifts in the way people live and low interest rates, and housing prices rose a lot. Now, housing prices have essentially settled down.”
To watch Fareed Zakaria’s exclusive interview with Treasury Secretary Janet Yellen, tune in to “Fareed Zakaria GPS” this Sunday at 10 a.m. ET/PT.
Yellen said she is seeing some easing of stress in the labor market, including increases in unemployment claims, declines in job openings, and upticks in labor force participation. The labor market gaining more slack will help bring inflation down, but it doesn’t mean there needs to be a significant jump in unemployment, she said.
“I think the strong labor market and bringing down inflation are compatible goals,” she said.
US economic data released last week showed continued signs of cooling in areas such as inflation and consumer spending.
Last month, the collapse of Silicon Valley Bank and Signature Bank triggered a crisis in the US banking sector, roiled financial markets and fueled uncertainty about the potential for negative ripple effects to spread throughout the broader economy.
Treasury, in conjunction with the Federal Reserve and the Federal Deposit Insurance Corporation, intervened after the regional bank failures to ensure bank customers could access all their money and to stave off future bank runs.
The actions taken by the Treasury, Fed and FDIC “stemmed the systemic threat that existed,” Yellen told Zakaria.
“Americans should note that America has a safe, strong banking system,” she said. “Our banking system is well capitalized and liquid, and the problems that a couple of banks faced — this is not a general problem throughout the banking system. We took steps to make sure that depositors feel that their savings are safe, and the tools that we used to do that are ones that we could and would use again if difficulties in a single bank or a couple of banks were to create a risk of contagion to the system.”
Banks are likely to be “somewhat more cautious” in their operations and, as a result, could lead to reining in credit availability. Fed officials have noted that credit tightening could assist in efforts to cool inflation.
The bank failures, however, have fueled uncertainty about the potential for additional bank collapses as well as possible aftershocks that could tip the US economy into a recession while the Fed is nearing the tail end of a historic rate-hiking campaign to bring down inflation.
That’s not the case currently, Yellen said.
“I’m not seeing anything at this time that is dramatic enough or significant enough in my view to significantly change the outlook,” Yellen said. “I think the outlook remains one for moderate growth and a continued strong labor market with inflation coming down.”
Yellen’s interview with Zakaria came near the tail end of a jam-packed week of meetings, public appearances and speeches for the Treasury Secretary in conjunction with the IMF-World Bank Spring Meetings, where Ukraine was a key focus.
In the interview with Zakaria, Yellen said that Russia should pay for the damage caused in Ukraine and talks are ongoing as to potential mechanisms to make that happen.
“That’s a responsibility that I think the global community expects Russia to bear,” she said. “This is something we’re discussing with our partners, but there are legal constraints on what we can do with frozen Russian assets.”