WHEN: Today, Thursday, February 18th
WHERE: CNBC’s “Closing Bell”
Following is the unofficial transcript of a CNBC exclusive interview with United States Treasury Secretary Janet Yellen on CNBC’s “Closing Bell” (M-F, 3PM-5PM ET) today, Thursday, February 18th. Following is a link to video on CNBC.com:
All references must be sourced to CNBC.
SARA EISEN: Earlier today I spoke with Treasury Secretary and Former Federal Reserve Chair Janet Yellen for a CNBC exclusive interview. I started by asking her for an update on where the stimulus package stands right now.
JANET YELLEN: Members of Congress are dealing with it. The first steps toward reconciliation have been passed, a budget resolution. So, we’re hoping to see progress over the next couple of weeks in enacting that package into law. President Biden has had discussions with members of Congress on both sides of the aisle. Would ideally like to see a bipartisan support for a package that we think is really what we need to deal with the pandemic and to get beyond it, get our economy back on its feet and help all the people who’ve been so badly harmed by the pandemic and the economic havoc it’s caused.
SARA EISEN: One question I think that’s still out there is whether we need $1.9 trillion of stimulus. We just had a very strong retail sales report. You’ve got sectors of the economy like manufacturing and housing that are back to pre-pandemic levels, if not higher. The market at a record high. Is that an economy that screams $2 trillion needed in stimulus?
JANET YELLEN: Well, I think it does. We have an unemployment rate that if properly measured in some sense, is really close to 10%. In addition to over 9 million people unemployed, we have 4 million who’ve dropped out of the labor force, another 2 million who have seen reduced hours. So, we’re digging out of a deep hole. Last year was the worst year for economic growth since World War II. And the Congressional Budget Office projection recently showed it would take until 2024 in their baseline case to get back to full employment without a package like this. So, we think it’s very important to have a big package, addresses the pain this has caused. 15 million Americans behind on their rent, 24 million adults and 12 million children who don’t have enough to eat, small businesses failing. I, you know, I think the price of doing too little is much higher than the price of doing something big. We think that the benefits will far outweigh the costs in the longer run.
SARA EISEN: Even if it does cause sustained higher inflation, possible overheating of the economy? We’re seeing expectations rise. Commodity markets are really heating up.
JANET YELLEN: Well, inflation has been very low for, over a decade. And, you know, it, it’s a risk, but it’s a risk that the Federal Reserve and others have tools to address. The greater risk is of scarring the people, we having this pandemic take a permanent lifelong toll on their lives and livelihoods.
SARA EISEN: Where are you on, on stimulus checks, and particularly on some of the concerns and criticisms around them, that they go to people who are earning a paycheck and, and might not need them, for people who are going to, to use those stimulus checks to trade stocks? How do you respond to some of those concerns?
JANET YELLEN: Well, President Biden has discussed the checks with Republicans and members of Congress. He wants to make sure that they’re appropriately targeted so they go to people in need. You know, not to very high-income people who don’t need it. But, you know, there’s so, so much pain in this economy. I think these checks really will provide relief and they’ll help jump-start our, our economy, giving people money to spend when we can get out again and go back to our former lives. So, you know, there’re a lot of families that are operating on the margin and I think these checks will really help them.
SARA EISEN: Doesn’t it set us up also for a huge fiscal cliff in 2022?
JANET YELLEN: Well, there will be a lot of spending from this package this year and next. And it’s important not to create a fiscal cliff. We wanna make sure that the money is there that’s needed to keep our economy operating at full employment. I do expect a fair amount of private spending to kick in. There’s been a big buildup in savings buffers that should in the coming years spur spending when people can go back to eating, to eating out and to traveling and to vacationing. But President Biden is also looking to a I call it the Build Back Better Package, for jobs, a recovery package that will also provide some fiscal stimulus, but is, is mainly addressed to, to look, to try to deal with long term, structural problems in the U.S. economy that have resulted in inequality, slow productivity growth. He’s looking at an infrastructure program, at clean energy investments that would address climate change, in education and training to provide workers with the skills they need to succeed, investments in R&D and manufacturing to make our economy competitive and create good jobs for people that have upward career, career ladders. And, you know, this, this will be a further package in the years after that.
SARA EISEN: Have you been working on that yet? What, what sort of price tag are, are you potentially looking at when it comes to an infrastructure, climate deal?
JANET YELLEN: Well, the details haven’t yet been decided. We’ve been discussing elements of it, like the ones that I mentioned. And certainly, part of the package, the parts that are permanent, will be paid for in order to not raise long term deficits. But we’re still working on the details of the package.
SARA EISEN: If you do get at least $1.5 trillion of stimulus as you’re advocating, $1.9 trillion of stimulus, I know you, you do think that will help us get back to full employment sooner rather than later. What sort of GDP figures could we be looking at? Private sector estimates range from 5%, 10%. How high could we go in this economy this year?
JANET YELLEN: Well, we’re in a deep hole and it would good if we have really strong growth. And I think this package will help ensure this. You know, the Congressional Budget Office projected that without a package like this, it would take until 2024 to get back to full employment. And I think it’s, you know, if, if all goes well with the pandemic and that’s an area of considerable uncertainty how that will progress but if all goes well, I think we could be back to full employment next year.
SARA EISEN: You and President Biden have talked about raising corporate taxes, individual taxes. Clearly, you have to get through this stimulus and, and through the pandemic. What’s the timeframe there? Is this a 2022 story?
JANET YELLEN: Well, it would be, it would be a package that would probably be proposed later this year. And would involve spending and investments over a number of years in, you know, in infrastructure and education and training, things that would last for quite a few years. And probably tax increases to pay for at least part of it that would probably phase in slowly over time.
SARA EISEN: We’ve been spending the day here on CNBC watching the GameStop hearing on Capitol Hill. And, and I know this is really an issue for the SEC in terms of market structure, but you did convene a meeting of regulators to look at the issue. Do you think that the super easy policies of the Federal Reserve and the stimulus coming from fiscal authorities are, are making the conditions ripe for this kind of speculative trading activity that we’re, that we are seeing?
JANET YELLEN: Well, you know, honestly, I, it’s hard to say what’s caused this. But there is an increased prevalence of zero commission trading that I think has spurred retail investors to become more involved in the markets. The, you know, I did convene a meeting of regulators to discuss what happened during that episode. The SEC is going to prepare a report and look into it. And, you know, I think our broad conclusion was that the markets worked reasonably well during, during that time. And, the core infrastructure was resilient in spite of the fact that there was heavy trading and high volatility. But we really need to look at whether trading practices are consistent with investor protection and fair and efficient markets. And so, there are a number of areas that we wanna look at when the SEC has prepared its findings.
SARA EISEN: We’ve also seen a surge in the price of Bitcoin. Do you see that as a related phenomenon?
JANET YELLEN: It’s a highly speculative asset. And it’s had its ups and downs over the years. But you know, certainly, it’s seen a surge recently.
SARA EISEN: Do you wanna regulate it?
JANET YELLEN: I think it’s important to make sure that it is not used as a vehicle for elicit transactions and that there’s investor protection. And so regulating institutions that deal in Bitcoin, making sure that they adhere to their regulatory responsibilities I think is certainly important.
SARA EISEN: While we’re talking about other speculative activities, we’ve seen big moves in IPOs, in SPACs like we’ve never seen before. The stock market at, at a record high. Does it, does it all make sense to you? Does it match up with, with fundamentals? You painted a picture of such a such a dire labor market and an economy in need.
JANET YELLEN: Well, partly, we’re in a very low interest rate environment. And while valuations are very high, in a world of very low interest rates, price earnings, tight multiples tend to be high. That said there, you know, may be, may be sectors where, you know, where we should be very careful.
SARA EISEN: What about on, on the debt side? Certainly, you’re gonna be issuing a lot of debt later this year. Do you think that the, the Fed is going to be able to absorb that, to buy all that debt? Are you worried about the, the lack of foreign interest in participation lately? Think they’re gonna have to implement another QE perhaps?
JANET YELLEN: Well, I think the market for Treasuries is very robust. The Fed will buy whatever they think is appropriate from the standpoint of monetary policy. But, there is a robust global market for U.S, U.S. Treasuries. And, you know, we expect to, we don’t see any pressure in terms of being able to finance the deficit and I expect that to continue.
SARA EISEN: And finally, on, on trade, Secretary Yellen, you’ve, you’ve indicated that you intend to be tough on China against its abuses on trade and humanitarian issues. How, how different is the approach from you and President Biden going to be than your predecessors?
JANET YELLEN: Well, we’re–
SARA EISEN: The Trump administration.
JANET YELLEN: We’re in the process of evaluating what our approach should be toward China. But there’re a range of issues where we see unfair practices. It’s not just trade, but in some cases forced technology transfer, subsidies to high technology industries where there may be national security concerns. And we wanna make sure that we do address and hold China to abide by its international obligations in these areas. I, I think it’s important we’re not the only country that has concern about some of China’s economic practices. And we have an opportunity to work with our allies to address some of these practices jointly. But I, I’d say, look, you know, we also need to cooperate with China. We have problems like climate change, nuclear proliferation where the pandemic itself, its global implications, where we really need to cooperate and can’t be successful without that cooperation. So, there’d be a balance there.
SARA EISEN: Do tariffs work?
JANET YELLEN: We’ll, we’ll look at that. For the moment, we’ve kept the tariffs in place that were, you know, put in place by the Trump administration. Expect China to adhere to the commitments that were made and we’ll evaluate going forward what we think is appropriate.
SARA EISEN: Are we gonna expect to see you, you tweeting at China? I know you recently joined Twitter.
JANET YELLEN: I did, I did join Twitter and I’ve been tweeting more than I had historically. But I, I don’t expect to announce policy decisions via Twitter.
SARA EISEN: And the, the other personal question I had for you is whether you picked up any quarantine hobbies, as some of the rest of us did, when, when it comes to baking or knitting. Or perhaps you were just getting ready to be Treasury Secretary.
JANET YELLEN: Well, we’ve taken up a lot of cooking. Because we haven’t been eating out very much my family’s been experimenting with lots of new kinds of, of cooking. Especially Indian, which we’ve been enjoying.
