Yellen to CNN: The US can bring down inflation while maintaining a strong job market

CNN

In an exclusive interview with CNN's Fareed Zakaia, Treasury Secretary Janet Yellen said that the upheaval in the banking sector last month has not pushed America away from a successful soft landing.

Yellen stated that she believes there is a way to reduce inflation and maintain what we all would consider a strong labor markets. "And the evidence I'm seeing indicates that we are on this path."

She then added: "Are there any risks?" It's a given. I'm not trying to minimize the risks, but it's certainly possible.

Yellen cited factors that have pushed inflation well beyond tightness in the US labor markets, notably Russia’s war in Ukraine which increased food and energy costs; and supply chain disruptions from the pandemic era, which led to key material shortages which clogged up critical pieces in the economy such as the automobile industry.

She said that supply chain bottlenecks, which boosted inflation are beginning to be resolved. Housing prices increased dramatically as a result of the big changes in people's lifestyles and low interest rates. Housing prices are now essentially stable.

Tune in to 'Fareed Zakaria GPS,' Sunday morning at 10 a.m. ET/PT to watch Fareed Zakaria’s exclusive interview.

Yellen stated that she has seen some easing in the labor market. This includes an increase in unemployment claims, a decline in job openings and an increase in labor force participation. She said that a more flexible labor market will bring down inflation, but this doesn't require a large increase in unemployment.

She said, "I believe that a strong labor market is compatible with reducing inflation."

The US economic data released by the US last week revealed that there was a continued cooling of areas like inflation and consumer expenditure.

The collapse of Silicon Valley Bank last month triggered a crisis within the US banking industry, caused financial markets to swell, and increased uncertainty regarding the possibility that negative ripple effects could spread across the economy.

Treasury intervened, along with the Federal Reserve, to make sure that bank customers had access to their money, and to prevent future bank runs.

Yellen said that the actions taken by Treasury, Fed, and FDIC'stemmed' the systemic threats that existed.

She said that Americans should be aware of the fact that America's banking system is strong and safe. Our banking system is liquid and well-capitalized, so the problems that some banks had are not widespread. We made sure depositors felt safe and secure. The tools we used were ones we would and could use again, if difficulties at a few banks or one bank created a threat of systemic contagion.

As a result of this, banks may be more cautious in their operation and reduce credit availability. Fed officials noted that tightening credit could help to cool down inflation.

However, the bank failures have created uncertainty over the possibility of additional bank collapses and possible aftershocks which could tip the US into a recession, while the Fed nears the end of an historic rate-hiking program to bring down inflation.

Yellen stated that this is not the case at present.

Yellen stated that she did not see anything dramatic or significant at this point to change the outlook. I think that the outlook is for moderate growth, a strong labor market and falling inflation.

Yellen's Zakaria interview came at the end of a busy week for the Treasury Secretary, which included meetings, speeches, and public appearances in conjunction with IMF/World Bank Spring Meetings. Ukraine was a major focus.

In an interview with Zakaria Yellen stated that Russia should be held responsible for the damage done in Ukraine, and that talks are underway to determine the best possible mechanisms to achieve this.

She said, 'I think that the global community expects Russia' to take on this responsibility. We're talking about this with our partners but there are some legal restrictions on what we can and cannot do with Russian assets that have been frozen.