Yellen: “Progress on inflation is not going to be a straight line”

Kai Ryssdal, Andie Corban, and Sarah Leeson Mar 2, 2023
Heard on:
"There's a great sense of community but an enormous amount of trauma that everyone in Ukraine is experiencing," Treasury Secretary Janet Yellen says. Above, Yellen at a school in Kyiv earlier this week. Genya Savilov/AFP via Getty Images

Yellen: “Progress on inflation is not going to be a straight line”

Kai Ryssdal, Andie Corban, and Sarah Leeson Mar 2, 2023
Heard on:
"There's a great sense of community but an enormous amount of trauma that everyone in Ukraine is experiencing," Treasury Secretary Janet Yellen says. Above, Yellen at a school in Kyiv earlier this week. Genya Savilov/AFP via Getty Images

Earlier this week, Treasury Secretary Janet Yellen made a surprise visit to Kyiv, where she reiterated that the United States will continue to support Ukraine in its war against Russia. Back in Washington, D.C., Yellen spoke with “Marketplace” host Kai Ryssdal at the Treasury building, where they discussed ongoing economic aid to Ukraine, inflation, the debt ceiling and more. The following is an edited transcript of their conversation.

Kai Ryssdal: I want to talk about Kyiv for a minute and Russia and Ukraine. You said in the op-ed that dropped while you were there that the United States has a moral duty to help the Ukrainians. I wonder how you reconcile that with the power of the purse and leader, Speaker [Kevin] McCarthy and Republicans in Congress not being really eager to spend more money on that effort.

Helping Ukraine is “a moral obligation”

Janet Yellen: Well, first of all, I do believe we have a moral obligation to help a country and its people who are utterly courageous in fighting against a brutal and unprovoked attack on them, which threatens not only that country and its people, but also raises a threat to many other countries if we don’t stand up against this kind of aggression. We haven’t seen anything like this in Europe in decades, and it really is a violation of all that we stand for. And so it is in our interest to stand up against it. And, you know, Sen. [Mitch] McConnell has made clear that he strongly supports and believes in our obligation to help Ukraine, many Republicans, as well as Democrats, congressional delegations, who visited Ukraine and expressed their support. So my belief is that there is broad bipartisan support for helping Ukraine for as long as it takes.

Ryssdal: All of that said, though, do you suppose possibly you and the president are setting yourselves up to fail if you can’t bring Speaker McCarthy on board?

Yellen: Well, we’re going to do everything we can to convince members of Congress that this is a priority we must support and this is very much in our interest.

Ryssdal: While you were there and in that op-ed, you talked a lot about the economic imperative for the Ukrainian economy, right, and how war, while a horrible humanitarian disaster and a national security challenge, is fundamentally an economic challenge as well. And I guess my question is: There will be trillions of dollars in capital infrastructure cost necessary to rebuild Ukraine, in addition to the many more billions that we’re surely going to give them in economic assistance and national security assistance. When you say we’re there for as long as it takes, are you there for as much money as it takes as well?

Yellen: Well, our focus right now is on the short-term budget needs that Ukraine has in order to be able to go on providing the social services, schooling, first responders. 

Ryssdal: You visited a school when you were there. What was that like?

Yellen: I did visit a school. It was a very moving experience. What you see is that every teacher and every student is experiencing enormous trauma and disruption in their lives. I don’t think there is a soul in Ukraine whose life has not been deeply touched by what’s going on. We met with teachers, one whose husband for the second time was called off to fight. A woman who is a teacher with two children she’s left alone to take care of. And this is a school that has many disabled children who need kind of a calm, a place they can go where they’re supported, where they can continue their educations and find a calm and supportive place in their lives, because all of these children, their families, have been displaced. Many have experienced loved ones who’ve lost their lives or been injured. People who have migrated either internally or out of Ukraine.

These are people who, now the day that we were there, the electricity was functional all day, but as recently as a week or two ago, electricity for everybody living in Kyiv is available mainly often only a few hours a day, many hours unpredictable, in which you can’t get electricity. I visited a, they call them, “point of invincibility.” They have established essentially tents, heated tents, in many places in Kyiv where people can go when they can’t cook food, the electricity is out, they need to charge a cellphone, they need to get warm, they need to make sure their children are fed, places that they can go when they can find support. And there’s a great sense of community but an enormous amount of trauma that everyone in Ukraine is experiencing, even if they’re not in there in a place like Kyiv, where of course there are attacks and have been horrendous, horrendous attacks but are not in the middle of the fighting.

Kai Ryssdal, a man with grey hair and a grey suit jacket, is seated at a long dark-wood table, facing away from the camera. He is looking at Treasury Secretary Janet Yellen, a woman with short grey hair, a blue blazer and blue jacket. They are in a traditional room with white and cream walls. Behind Janet Yellen is a bureau and a large framed print.
“Marketplace” host Kai Ryssdal and Treasury Secretary Janet Yellen at the Treasury building Thursday. (Nancy Farghalli/Marketplace)

Ryssdal: You’ve talked a lot about U.S. and Western sanctions, denying the Russians the ability to wage the kind of war that they are doing. You’ve talked a lot about economic sanctions, denying the Russians the ability to wage the war that they’ve kind of been doing, but the International Monetary Fund the other day said reasonably positive things about the Russian economy. Yes, we have sanctions, yes, we are devoted to pursuing them. But it certainly seems like for now, they’re not doing what you want them to do.

Yellen: You’re asking me about Russia?

Ryssdal: I’m asking you about Russia. 

Yellen: So the numbers like GDP growth in Russia have been more positive than we and the IMF had forecast.

Ryssdal: And probably hoped, right?

“We are impacting their ability to wage war”

Yellen: Well, let me say what we hope is that we can deny Russia access to the revenues that they need to fight this war, and to the goods that they need in order to be able to supply their military. So that’s our focus, is using our sanctions in order to cripple their war effort. Now, they have been devoting substantial resources to trying to support their economy that’s come at the cost of very large budget deficits that were unanticipated for them. And they’re running down some of the assets that they had built up to use as buffers in case their economy hit problems. So they are trying to keep their economy moving forward and to cushion the domestic blows from more sanctions. But when you come back to: Are we denying them? Are we degrading their military readiness and capability? The answer is clearly yes.

The equipment that they have lost, all over 9,000 pieces of equipment, including tanks, they’re having a tremendously difficult time replacing. Our export controls and sanctions have meant that most countries are able to supply the inputs they need, the semiconductors that go into this equipment, they don’t have access to that. They’re turning to countries like Iran and North Korea, who were hardly preferred providers of this equipment, in order to try to resupply their military. And it’s clear that they are running short of the material that you need to wage war. And our sanctions on their oil, we have put a price cap on the amount that they can get for selling crude, or more recently, refined products, has almost halved their revenues over the last year from oil sales, which is a critical source of support. So we are reducing their revenues. And we are impacting their ability to wage war.

Ryssdal: You and I have spoken several times, and this is the first time I think you’ve ever come close to thumping the table in an answer.

Yellen: Well, I feel very strongly about this. This is a brutal and unprovoked attack against an innocent democratic people who are showing incredible courage and great resilience in fighting an enemy that few imagined they would be able to effectively confront. And the stand that they are taking is critically important to all democratic countries in preserving our way of life and supporting our values, and an international order that runs according to fundamental human rights principles.

U.S.-China relations

Ryssdal: Last question on the global economy, and then I want to turn to domestic affairs. I want to talk about China for a second. Much in the news, Congress is agitated about it. The president, of course, is taking action against the Chinese, specifically with technology, but in a lot of other sectors. I wonder if you believe the global economy is ready for the two biggest economies on the planet to not be getting along really well?

Yellen: Well, I think it’s important that China and the U.S., as the world’s two leading economies, attempt to at least put a floor under their relationship.

Ryssdal: That’s an interesting phrase, that we’re “putting a floor under this economic relationship,” arguably the most important economic relationship in the world.

Yellen: Well, it’s important that we do get along. We have our differences, clearly. We’re concerned about China’s behavior, both in the national security context and also economic practices that we think are harmful. And we need to address those things. But for the sake of our own countries and the globe, we also need to get along. We’ve agreed, and President [Joe] Biden and President Xi [Jinping], when they met in Bali made this clear on issues like the global macro environment, which we both influence greatly. We need to talk about these things and understand what we need to do to provide for healthier growth. And in issues like climate change, where we all have an interest in addressing it, pandemics, we need to make preparations so that we’re prepared for a future pandemic, the spillovers of conflict in the form of migration and the tensions that it causes. These are issues where we need to work together for the sake of the entire globe. And I hope that we’ll be able to resume discussions. I’ve started discussions with my counterparts in China, and hope to be able in an appropriate time to resume them.

Ryssdal: I need to tick through a couple of things on the domestic economy. First of all, inflation. There was a period, lasted a brief shining moment, where inflation looked like it was trending down. It is now trending back up. I wonder why you keep saying positive things about your hopes for the future of this economy when inflation certainly doesn’t look like it has been taken care of?

Bringing down inflation

Yellen: Well, inflation remains too high. And it’s President Biden’s top economic priority to make sure that it comes down. Most of the work in doing that is allocated to the Federal Reserve. But there are additional steps we can and have taken to bring inflation down too. 

Ryssdal: Yeah, but you why are you so hopeful about this economy? When the indicators are, consumers are anxious, inflation is ticking back up. And I don’t want to get into the whole R-word thing. But people are talking about recession.

Yellen: So I guess I would disagree with the characterization that inflation is moving in the wrong direction. Headline inflation year over year has come down for seven months in a row, the CPI [consumer price index] inflation. And while core inflation has been relatively stable, you know, we have to avoid looking at month-to-month fluctuations, the progress on inflation is not going to be a straight line. Broadly speaking, it’s coming down, and we fully expect it to come down substantially further this year. Shelter costs have been contributing importantly to inflation. They clearly will be receding in the months ahead because the prices of new rentals have stabilized or even come down. Supply bottlenecks that were boosting transportation costs have diminished very substantially. Used car prices are coming down. We’ve managed to bring down and stabilize energy prices. Gas prices are $1.60, I believe, off their high at this point, and inflation is coming down but it remains too high. It needs to be watched, but I believe it will continue to move down.

Ryssdal: The labor market. I ask people on this program all the time if they can explain the labor market. You’re a labor economist. I can think of nobody better to ask this question: Why isn’t the labor market in this economy responding to what the Federal Reserve is trying to do — slow it down and just take a pause.

Yellen: So spending in this economy, the housing sector has weakened substantially as a consequence of the interest rate increases that the Fed has put in place, but consumer spending remains solid, and —

Ryssdal: — which is ordinarily a good thing, unless you’re trying to bring inflation down. And we’re creating 500,000 jobs a month in this economy. 

Yellen: Well, look, that’s one month. And that number can be highly distorted by seasonal fluctuations. We had a very warm January —

Ryssdal: — yes, we did. So let me give you another one. First-time claims for unemployment benefits, now seven weeks in a row under 200,000. They were down again this morning. The labor market is looking at the Fed going, “Eh.”

Cooling the labor market

Yellen: So we do have a tight labor market. Firms have been trying very aggressively to hire, and the Fed probably needs to take a little bit of heat out of the labor market. But that doesn’t mean that people need to lose their jobs. As growth slows, and it has slowed to a far more sustainable pace, the intensity with which firms will try to hire, pushing up wages and possibly causing inflationary spillovers, that intensity is likely to diminish. And I continue to believe that it’s possible to see inflation come down in the context of a labor market that remains healthy and is able to provide jobs for people who want to work. And we also need to take steps to improve labor supply. And President Biden will be releasing a budget next week that contains policies that are designed to boost labor supply as well.

Ryssdal: I have to ask you about the debt limit. I don’t want to talk about minting the [trillion-dollar] coin. I don’t want to talk about whether or not it’s a gimmick. I want to ask you this: Do you suppose, do you think that the way we treat our obligations in this country and the political ping pong ball that they become, do you suppose that makes us look unserious to the rest of the world?

Raising the debt ceiling

Yellen: Well, I think the rest of the world does become concerned when they see members of Congress threatening to prevent the United States from paying its bills. We’re a country that since 1789 has always paid our bills. And they want to see a commitment from the United States, which is our Treasuries are the world’s safest asset. We are the leading financial country of the world and reserve the world’s reserve currency. They want to know that Congress will never contemplate preventing us from paying our bills. And that’s what raising the debt ceiling is about, is making it possible to pay the bills for expenses we’ve already incurred that have been decided by Congress.

Ryssdal: Last question, obviously, with all respect, this has been an interview in which hope is playing a big factor. You hope the Russians, their economy is going to suffer more, you hope the Ukrainians are gonna hold out, you hope that the Republicans in Congress are going to fund the Ukrainians, you hope inflation is going to come down and you hope Republicans in Congress are gonna raise the debt limit. That’s a lot of hope.

Yellen: We’re working toward those ends. It’s not purely hope. It’s also implementing policies, including sanctions, which Treasury is largely responsible for. And we’re working every day to make sure that we identify and address evasion of sanctions, and we’re constantly strengthening our sanctions. Last week, we announced a host of additional sanctions on Russia that we think will make our sanctions more effective, and we’re working closely with a group of allies who share our values. And the purpose of my trip, the main purpose of my trip to Ukraine, was to show the American people what their support for Ukraine is buying, what a difference it makes. And I think the American people are generous and humanitarian, and when they understand what the trauma is that an innocent people are experiencing, that when they understand what a difference our aid is making in enabling courageous people to continue to fight for their freedom and their right to self-determination, they will want to continue to provide that support. And it’s our job to make that case.

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