Janet Yellen still sees a soft landing despite weak jobs report

“For the US, the kinds of metrics that we would monitor that would sum up the risks — whether it’s asset valuations or a good degree of leverage — things look good, I don’t see any red lights flashing,” Yellen said on Saturday in a fireside chat. with Bloomberg News’ David Gura at the Texas Tribune Festival. “I’m careful about the downside risks” on employment, she said, while saying job growth is solid.

The Treasury chief spoke a day after US stocks capped their biggest weekly sell-off since the regional banking crisis in March 2023 – troubled by a weaker-than-expected wage gain that fueled concerns that the Federal Reserve will prove delay to start lowering interest rates. The S&P 500 fell more than 4% for the week.

“While there are risks, it’s been really amazing to be able to reduce inflation as significantly as we have,” while maintaining strong growth, Yellen said in Austin. “This is what most people would call a soft landing.”

Yellen pointed out that “wages are growing at a decent pace,” outpacing inflation, along with the lack of any mass layoffs. Monthly job growth is about at the level needed to absorb new entrants into the labor market, she said.

China Discussions

The August jobs report showed U.S. hiring fell short of forecasts, with nonfarm payrolls rising 142,000. The three-month average hit its lowest since mid-2020, according to data from the Bureau of Labor Statistics, but the jobless rate fell to 4.2 percent — the first decline in five months, reflecting a reversal in temporary layoffs.

Yellen also said she would welcome a visit to the US by her Chinese counterpart and was open to another visit of her own to China as she stressed the importance of interaction between the world’s two largest economies. “Certainly I might go back there – I would get a visit from my Chinese counterpart and I think we will have a visit one way or another.”

Yellen met for hours with her counterpart Vice Premier He Lifeng during a visit to Beijing in April, continuing the rapprochement between the two nations that began last November with President Joe Biden’s meeting with President Xi Jinping.

Asked about the status of a review of Nippon Steel Corp.’s $14.1 billion takeover of United States Steel Corp., Yellen declined to comment on any specifics. Biden plans to kill him as soon as the so-called CFIUS reference lands on his desk, Bloomberg reported this week. Vice President Kamala Harris also said US Steel should remain domestically owned and operated.

Foreign investment

The Treasury Secretary heads the CFIUS committee, which reviews takeovers perceived to involve security risks. Yellen emphasized that the US remains open to foreign investment.

“It is a priority to maintain an open and healthy environment for foreign countries to invest in the US, as we invest in many countries around the world,” Yellen said. However, she pointed out that foreign investment in the US can raise national security issues.

As for potential threats to the financial system, Yellen said “there is much less regulation of the financial system outside of the banking system, and there are risks there.”

While the dangers arising from money market funds have hopefully been successfully addressed, there are some areas outside of core banking that remain of concern, she added. “Cybersecurity is a huge and growing risk, we’re working on it.”

Over time, the fiscal trajectory also needs to be addressed, she said.

“One challenge we face in the United States is that the level of tax revenue has declined compared to historical norms,” ​​in part due to former President Donald Trump’s 2017 tax cut package, Yellen said.

Looking out 10 to 20 years, she said, spending on Social Security and Medicare will also prove a major drain. “The aging population and the expansion of those programs may put us on a fiscal path that is not sustainable.”

“Budget deficits must be reduced to the point where debt interest costs remain manageable,” she said, reiterating her preferred metric for sustainability — keeping the inflation-adjusted interest cost of gross domestic product below 2 percent .

The budget proposed by the Biden administration would keep the U.S. at that 2 percent ratio for the next decade, Yellen said.

Recommended reading:
In our new special edition, a Wall Street legend gets a makeover, a tale of crypto iniquity, poultry misconduct and more.
Read the stories.