WHEN: Today, Wednesday, June 7, 2023
WHERE: CNBC’s “Squawk Box”
Following is the unofficial transcript of a CNBC exclusive interview with United States Treasury Secretary Janet Yellen on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Wednesday, June 7. Following are links to video on CNBC.com:
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: Treasury Secretary Janet Yellen joins us now exclusively in the first interview since the debt ceiling deal was passed. Secretary, thank you for joining us.
SECRETARY JANET YELLEN: Thank you so much Andrew.
SORKIN: So, we’re all trying to, I mean, the good news is that’s behind us. But there’s a lot in front of us. We still seem to have a very strong economy, possibly a little too strong. Where do you think we really are?
YELLEN: Well, you know, I’ve been saying now for almost a year that I see a path to bringing down inflation while maintaining a strong labor market. And I think the data we’ve seen recently and over the last year, suggest we’re on the path with those characteristics. So clearly the labor market remains quite strong, with unemployment close to 50-year lows and very healthy job creation. But on the other hand, we are seeing some signs of easing pressures in the labor market, which may be important in terms of bringing inflation down. The quick rate has risen slightly. Job openings have declined somewhat suggesting a bit less pressure in terms of firms adding to their workforce, but overall, the labor market remains very strong and inflation has now come down about 4% from its peak, and I think we’ll continue to see progress over the next, next two years.
SORKIN: But do you, what do you think unemployment has to be in this country to actually and to have inflation actually level off? We keep talking about what the Fed can or can’t do, but politically, part of that is a question about employment in this country.
YELLEN: Well, to me a strong labor market is one where individuals who want to work can quickly find work. We’ve always thought an unemployment rate with four as the first digit is, is a very strong labor market. Clearly, Americans feel good about their job prospects. They’re finding work quickly. The, you know, hiring pressures and it’s not just a matter of the unemployment rate that determines pressures in the labor market. It’s also the job vacancies and how strong the appetite is of firms to hire. The economy has slowed somewhat, and we’re seeing less pressure by firms trying to rebuild their work, their workforces, but we still have a very healthy labor market, wage gains are significant, but nevertheless, we’re seeing a bit of easing of pressures.
SORKIN: Madam Secretary, I don’t know if you can take us behind the scenes now that the debt ceiling deal is complete. How close did we really get, and I know prior to the deal, you’d be asked the question, you know, whose bills were you going to pay first and what kind of preparations were you making? And I think it didn’t really want to answer the question. Now that that’s off the table, can you tell us a little bit about how that all would have worked?
YELLEN: Well, what I can tell you is that what I said and what President Biden said from the outset is that to protect our economy and our financial markets from catastrophe, what’s necessary is to find a consensual bipartisan approach to raising the debt ceiling and that was my focus. That was President Biden’s focus. That was what was achieved. I think it’s a win from the for the American people because had the debt ceiling not been raised, regardless of what approach was taken. The, the consequences would have been very adverse, very significant and very negative. I believe that recession would have been very likely. And we could have had a global financial crisis, higher interest rates for a very long time. So fortunately, although our balance dipped to very low levels. We continued to be able to pay all of America’s bills. And there was it’s important to realize there was a commitment from all parties in this negotiation, not to default on the debt to find a bipartisan solution and I think it’s a win for the American people that that occurred, and it’s also important to recognize that Social Security and Medicare were protected, Medicaid was protected. Had that not occurred, 21 million Americans could have lost healthcare, veterans benefits were protected and as important now that our economy is operating in the vicinity of full employment, we’re very focused on investing in America, strengthening long-term prospects for our economy to make it more competitive, to create good jobs and the — legislation that was passed the Chips and Science Act, the Infrastructure Act, those both bipartisan, the Inflation Reduction Act, the important things there have been preserved.
JOE KERNEN: Madame Secretary, I guess not everyone agrees obviously depends on where you’re sitting, but some people think a lot of that spending contributed to the 40-year highs that we saw on inflation with a lot of other factors as well. That contributes to a 525-basis point increase in rates, that makes investing in all these things more difficult since so much of what we bring in needs to be spent on on servicing our debt. So it’s, it’s seems like it’s a really difficult sort of a conundrum, that we want to spend money on things to help to help people but the more we spend, the less we have leftover after we service our debt. You think we need to to cut spending somewhere where we can so we can spend it in better places?
YELLEN: Well look, this bipartisan agreement just cut the deficit by a trillion dollars and the deficit fiscal stimulus has declined certainly since the pandemic ended. So that is supporting the Fed’s efforts to bring inflation down. I don’t think there’s a tradeoff between investing in America and doing spending that will improve the trajectory for our economy and job prospects. There’s there’s not a conflict between that and running a responsible fiscal policy. President Biden offered a budget that has significant further investments in our economy, while lowering deficits over 10 years by $3 trillion but revenue needs to be part of that discussion. It’s not all a matter of spending. I think we in the interest of tax fairness and having the resources to invest in our economy, we also need to be considering proposals that would enhance revenue while also controlling on spending.
BECKY QUICK: Secretary Yellen, we just spoke with the former Richmond Fed President Jeffrey Lacker, and he said that he actually thinks that we’re going to have to take rates to 6% in order to really get inflation back to 2%. Does that fit with your line of thinking, does that seem fair?
YELLEN: Listen, I’m going to leave the Fed to make its own decisions about what’s necessary. Consumer spending has continued to to grow in a pretty robust way, but we’re also seeing areas of the economy that are slowing down. And this is a judgment that my former colleagues at the Fed are very capable of making. As I said, I think what’s important is to try to bring inflation down. That’s a top priority. We support the Fed’s efforts to do that and we’re making the contributions we can, prescription drugs, healthcare costs, and other things and a strong labor market.
SORKIN: Madame Secretary, I wanted to ask you about the banking business but as it relates to commercial real estate, there’s a lot of worry, as you know so very well about the state of commercial real estate, especially around office and what that means to a lot of the regional banks, maybe not now, but come the end of this year, early next year, and the implications for that. Some people believe that there could be more bank failures. How concerned are you about that?
YELLEN: Well, I do think that there will be issues with respect to commercial real estate. Certainly, the demand for office space since we’ve seen such a big change in attitudes and behavior toward remote work that has changed and especially in an environment of higher interest rates. I think banks are broadly preparing for some restructuring and difficulties going ahead. But I think certainly stress tests of the largest banks show that they have adequate capital to deal with it and I know the supervisors will be looking closely at a wide range of banks to make sure that they are adequately prepared to deal with it. But my overall read is that the level of capital and liquidity in the banking system is strong, and that while there will be some pain associated with this, that banks should be able to handle the strain.
SORKIN: Would you be supportive of more consolidation in the banking business. I ask in part because on the other side of the administration, I think the Department of Justice and the FTC in particular have been very aggressive about trying to prevent transactions not necessarily in the banking space, but, but given how outspoken you have been and the issues that may be unique in particular to the banking business.
YELLEN: Well, I see strength in the banking system that has a diverse set of financial institutions capable of satisfying different needs across our economy and we do have a diverse banking system with strong community banks, regional banks, large, larger banks that are involved in global business and I wouldn’t want to see that threatened but certainly in this environment, some banks are experiencing pressure on earnings and there is a motivation to see some consolidation and wouldn’t surprise me to see some of that going forward.
SORKIN: Madam Secretary, virtually every interview that we’ve done over the many years with you, we’ve we’ve always mentioned crypto. We’re going to have Brian Armstrong from Coinbase on the program in just a little bit. Obviously, there’s the lawsuit that the SEC has now brought against them and the separate lawsuit against Binance just in the past week. I’m curious where you stand now on crypto because I think there was an evolution in your thinking in certain ways. Maybe it’s changed, I don’t know. What’s your what’s your sense for the American public who’s thinking about whether to invest in the world of crypto today?
YELLEN: Well, you know, I think, we recently wrote, Treasury contributed a set of reports in response to the President’s executive order to examine the risks inherent in crypto, and we identified a number of risks, some of which risk to consumers, investors. Our laws are already strong, the SEC, the CFTC and other regulators have the ability and tools to protect consumers and investors and I’m supportive, very supportive of seeing those agencies use the tools they have. I can’t, I can’t comment on the individual matters the SEC is looking at, but I think it’s certainly appropriate that they do that. And then I see some holes in the system where additional regulation I think would be appropriate and we would like to work with Congress to see additional legislation passed.
SORKIN: Madam Secretary, very quickly because I know we’re going to run out of time. I have two very, very quick questions. One has to do with the global tax and I wanted to get your thoughts on the fact that the Republican Party is now really pushing back on that in a meaningful way and where you think that really stands and whether that can even happen at this point?
YELLEN: Well, I think the pushback frankly is misguided. I think this is an extremely important agreement. Countries are beginning to adopt it. The EU has, is moving to put it in place, and other countries are as well and I think this will stop the race to the bottom that’s occurred over decades in which countries have competed to make, to try to get business to their shores and it’s good for American business—
SORKIN: But does that seem impossible to happen at this point, Madame Secretary?
KERNEN: It’s all 25 on the House Ways and Means. They all said there will be retaliatory action against any EU country that that that’s, you know, they’re saying no way. Madame Secretary, is there, is there a way around that?
YELLEN: Well, I don’t believe that that legislation is going to become law. And I think that over time as other countries adopt this minimum tax and put in place penalties designed to encourage countries that are not part of it, to adopt it, that the United States and members of Congress will see that it is sensible and appropriate for us to put it in place as well. So I’m I’m encouraged to think that over the next few years we will we will adopt it too.
SORKIN: And I know you got to go Live Golf, PGA, you’re the chair of CFIUS. Do you think there’ll be a review and I’m so curious what you thought of that transaction?
YELLEN: I really don’t have anything for you on the golf situation. And I’m sorry to say I can’t comment on cases that CFIUS is looking at so—
SORKIN: Is CFIUS, will CFIUS look at this case? I know the Department of Justice is looking at at at the PGA of course, in terms of an antitrust case.
YELLEN: CFIUS is very focused on national security so—
SORKIN: Would this, would this be a national security asset or maybe a strategic asset for the U.S.?
YELLEN: Well, it’s not immediately obvious to me that this is an issue of national security. But I’m going to leave that to my colleagues who participate in CFIUS to decide.
KERNEN: What’s your, what’s your handicap, Madam Secretary. Do you view, do you go right or left on the—
YELLEN: I need a really big handicap and—
KERNEN: To play—
SORKIN: Madame Secretary—
YELLEN: Yeah, I do indeed.
YELLEN: Do you pay your caddie in Bitcoin? Do you have any Bitcoin left?
SORKIN: Madame Secretary, thank you so much for—
YELLEN: U.S. dollars, the strongest currency in the world.
SORKIN: Exactly.
KERNEN: Excellent.
SORKIN: Secretary Janet Yellen, thank you so very, very much.
