Treasury Secretary Janet Yellen said there have been no “red lights” within the economic system and reiterated her view that the U.S. economy had achieved a soft landing whilst job growth slowed.
“For the U.S., the metrics we monitor that summarize the risks – whether it’s asset valuations or high leverage – are looking good, I don’t see any red lights flashing,” Yellen said Saturday in a fireplace chat with Bloomberg News’ David Gura on the Texas Tribune Festival. “I’m watching for downside risks” to employment, she said, saying job growth was solid.
The Treasury secretary spoke a day after U.S. stocks posted their biggest weekly sell-off for the reason that regional banking crisis in March 2023 – jolted by a weaker-than-expected rise in jobs that fueled concerns the Federal Reserve could also be late in cutting rates of interest. The S&P 500 index lost greater than 4% for the week.
“Although there are risks, it was really amazing that we were able to bring inflation down so significantly” while maintaining strong growth, Yellen said in Austin. “Most people would call that a soft landing.”
Yellen stressed that wages were rising “at a decent pace,” faster than inflation, and that there had been no mass layoffs. Monthly job gains were at in regards to the level needed to soak up recent employees into the labor market, she said.
China talks
Labor market data for August showed that U.S. hiring fell wanting forecasts. Nonfarm payrolls rose by 142,000, with the three-month average hitting its lowest level since mid-2020, in keeping with data from the Bureau of Labor Statistics. However, the unemployment rate fell barely to 4.2% – the primary decline in five months, reflecting a reversal of temporary layoffs.
Yellen also said she would welcome a visit from her Chinese counterpart to the U.S. and was open to a different visit to China, as she stressed the importance of cooperation between the world’s two largest economies. “I will certainly go back there – I would welcome a visit from my Chinese counterpart and I appreciate that we will have a visit one way or another.”
Yellen met for hours along with her counterpart, Vice Premier He Lifeng, during a visit to Beijing in April, continuing the resumption of relations between the 2 countries that began last November with the meeting between President Joe Biden and President Xi Jinping.
Asked in regards to the status of a review of Nippon Steel Corp.’s $14.1 billion takeover of United States Steel Corp., Yellen declined to comment on specifics. Biden plans to call off the review once the so-called CFIUS referral lands on his desk, Bloomberg reported this week. Vice President Kamala Harris has also said U.S. Steel should stay in office. owned domestically and operated.
Foreign investments
The US Treasury Secretary heads the CFIUS committee, which reviews takeovers which are considered to pose a security risk. Yellen stressed that the US stays open to foreign investment.
“It is of the highest priority to create an open and healthy environment for foreign investment in the United States, just as we invest in many countries around the world,” Yellen said. Nevertheless, she stressed that foreign investment within the United States could pose a risk to national security.
Regarding potential threats to the economic system, Yellen said: “Outside the banking system, there is much less regulation of the financial system and that is where risks exist.”
While the threats posed by money market funds have hopefully been successfully addressed, there are some areas outside the core banking business that proceed to cause concern, she added. “Cybersecurity is a huge and growing risk, and we are working on that.”
Over time, budget development must even be addressed, she said.
“One challenge we face in the United States is that the level of tax revenues has declined by historical standards,” due partly to former President Donald Trump’s 2017 tax cut package, Yellen said.
Over the following 10 to twenty years, she said, spending on Social Security and Medicare may also prove to be a significant burden. “The aging of the population and the expansion of these programs can lead us down a fiscal path that is not sustainable.”
Budget deficits should be reduced “to a point where interest costs on debt remain manageable,” she said, reiterating her preferred sustainability criterion: keeping inflation-adjusted interest costs relative to gross domestic product below two percent.
The Biden administration’s budget proposal will be sure that the U.S. stays inside that two percent goal over the following decade, Yellen said.
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