WHEN: Today, Thursday, July 15, 2021
WHERE: CNBC’s “Closing Bell”
Following is the unofficial transcript of a CNBC interview with United States Treasury Secretary Janet Yellen on CNBC’s “Closing Bell” (M-F, 3PM-5PM ET) today, Thursday, July 15th. Following is a link to video on CNBC.com:
All references must be sourced to CNBC.
SARA EISEN: Well Treasury Secretary Janet Yellen did just return from the G20 Finance Minister meeting, where she scored a big agreement on a global minimum tax, 132 countries have now signed on but she still needs to sell the idea to Congress. I asked her how she plans to do that and how she plans to deal with some of the holdouts still such as Ireland.
SECRETARY JANET YELLEN: Ireland and Hungary and Estonia are important because it may be that for the EU to adopt parts of the agreement will require uninamity. But I am very hopeful that these countries will see it as in their interest to join the global agreement. It’s really an important step for the global economy and for all countries in it to stop the race to the bottom that we’ve seen over many decades in corporate tax rates. There will remain differences across the world in terms of the level of corporate taxation. But stopping the competition that was really depriving countries of the ability to tax successful companies you know, that’s a source of income and revenue that we need in order all countries need in order to be able to finance important investments in their people and their economies.
SARA EISEN: But some people do see this as a way to fulfill the Europeans’ dream of taxing U.S. technology companies in particular. And that it’s not necessarily fair because they are the ones who are going to be paying out of this deal.
SECRETARY JANET YELLEN: Well, there are two pillars of this agreement. One, what’s called Pillar Two, is an agreement to that all countries will set a minimum corporate tax rate that applies to their, their home base companies, wherever they do business. A separate piece of the agreement, so-called Pillar One, responds to our concern with proliferation of digital service taxes that affected the largest American companies, the more profitable ones. And we’ve considered them in the United States, those taxes, to be unfair and discriminatory to U.S. firms. So the Pillar One agreement essentially says it’s we see it as fair for countries that are important consumers of products that are mainly supplied in other countries, like digital services, but not just digital services.
SARA EISEN: Like Apple and Facebook?
SECRETARY JANET YELLEN: That’s right. But, but other successful companies as well that are highly profitable that we’ve agreed to share a portion of the taxing rights with countries where these goods and services are consumed. So, we’re going to a system. We’ve agreed to a system where there’ll be some reallocation of taxing rights across countries but it will not focus on digital companies alone. It will be all the largest companies wherever they’re based that are highly profitable and it would be a, a tax on the excess profits that they receive. Importantly, it will result in the elimination of discriminatory digital taxes. That’s been agreed. And it’ll provide an environment of much greater tax certainty to our companies so that they won’t have to worry about the proliferation around the world of discriminatory taxes.
SARA EISEN: Does Amazon get included, because they don’t meet that 10% profit margin threshold.
SECRETARY JANET YELLEN: Well, it depends on, it depends on whether or not they will reach the threshold of profitability. And I, I’m not certain of that.
SARA EISEN: I, I’ve been talking to CEOs about this. And one thing they say is they’re just not sure it can actually come to fruition. That there’s a lot of friction when it comes to getting it passed through Congress. You’d have to potentially change trade treaties and get majority of Senate for that. Countries like China are gonna want exemptions to, to certain industries. There’s just a high hurdle to actually getting this through.
SECRETARY JANET YELLEN: Well, I think we’ve arrived at a good, strong global agreement on minimum corporate taxes that 132 countries, including China and every other G20 country, they’ve all agreed to put these strong provisions into effect. There are some special considerations built into the agreement. But it is a good, strong, solid agreement. And China’s agreed to be part of it. And we need to domestically reform the way we, we are a country, we have a global minimum tax, or so-called GILTI tax that was introduced in 2017. We’re proposing in the American Jobs Plan to raise corporate tax rates, raise the GILTI rate, the minimum on, on overseas profits for American firms. And also to move it to a country by country basis, rather than now, we impose this minimum tax on a blended basis. So, these are relatively modest reforms. They, I believe–
SARA EISEN: Don’t they make us less competitive though?
SECRETARY JANET YELLEN: Well, they don’t make us less competitive because you might argue that if the U.S. were moving alone, but we’re not moving alone. And there’s never been we’re the only country that has any global minimum tax. And now countries who’ve agreed will see what the rate is that’s decided next October. But they’ve agreed that they will adopt a rate of at least 15%. So, the gap between our taxes and those in the rest of the world are going to diminish. So, there’ll be a more level playing field for U.S. companies than there is right now. And we, we all agreed we’ve been in a race to the bottom in which one country has competed against another to attract business, to lower corporate tax rates. And in the end, nobody can win that kind of competition. And we eliminate globally the ability to raise revenue from successful corporations, which is not good for workers in the United States or the rest of the world. So this is a very worker-friendly decision. I, I am very hopeful it will be embodied in the reconciliation bill that Congress is working on now.
SARA EISEN: So you have today’s a big day. Child Tax Credit checks–
SECRETARY JANET YELLEN: It is a very big day.
SARA EISEN: Go out. I know you’re, you’re very proud of this and the goal is to reduce child poverty.
SECRETARY JANET YELLEN: And–
SARA EISEN: Help childcare expenses. Do you see it as, as an economic stimulus as well that should increase spending?
SECRETARY JANET YELLEN: Well, it certainly will add to spending. But most importantly, it provides support for families to be able to take care of the needs of children. We’ve seen this year, because of the American Rescue Plan, a dramatic reduction, 50%, in child poverty. And the Child Tax Credit which will amount to $3,600 a year for children under six and $3,000 for children from up through age 17, above six it’s really a meaningful, it’s the most important reason we’re seeing a reduction in child poverty. And we’ll work very hard at Treasury to make sure that these payments will go out every month. That means there’s a dependable, monthly source of income that families will be able to count on not have to wait until they file tax returns to get a rebate. But today is the first payment. About $15 billion went out today to show up in the accounts of the families of about 60 million children. And most working families, children will be eligible for these payments. They’re very, very meaningful. We’re working very hard to make sure that everyone eligible will be able to get these payments. Anyone who filed a tax return in 2019 or ’20 and anybody who wasn’t required to file a tax return, but did file—
SARA EISEN: It’ll get to them?
SECRETARY JANET YELLEN: A return for one of the economic impact payments, they will get them automatically today. And we really wanna reach out to those especially low-income families that are eligible but may not be in that group and so it’s important that every family understand that their children are potentially eligible. There’s a tool on the Treasury website that’s available for people to sign up if they’re not in the large group that will get it automatically.
SARA EISEN: What do you say to those though that, that wonder if this is just another handout that disincentivizes people to go out and look for a job on top of the enhanced unemployment benefits, ’cause that has been an issue, the millions of job openings and still millions of people unemployed?
SECRETARY JANET YELLEN: Well, I mean, most children are in families where one or both parents work. And I don’t really see this as something that will discourage work. I think the ability to pay for childcare and, you know, the resources that people need to take care of their children will free them up to be able to go out to work. So, I don’t see that as very significant. You know, the economy’s expanding at a very rapid pace. People are going back to work. We have suffered a very serious disruption in our economy. People have changed their lives in extraordinary ways. We’re now beginning to see with the success we’ve had in the vaccination program a very rapid growth in the economy. A lotta people are not able to go back to the old jobs that they had. They’re forced to look for new jobs. Realistically, it’s going to take a while for people to be fitted into new jobs as the economy opens back up. But, you know, we’re seeing a very rapid pace of job creation. We’re still down net over 6 million jobs since the pandemic. So, there are plenty of people left who are available to work. The additional unemployment insurance payments will be ending in September. I haven’t seen those as a very significant reason why, why we’ve had, you know, so many job openings–
SARA EISEN: You don’t think that’s a factor?
SECRETARY JANET YELLEN: Haven’t been filled. You know, it’s very hard to tell, but they will be ending. I think they’ve been very important in helping people survive a very tough period, giving ’em the income that they need. And, you know, importantly, as we emerge from the pandemic families have because of the payments they’ve received they, they have been able to pay down credit card bills. Most families are in good financial shape and ready to, you know, support spending in the economy that we need to grow.
SARA EISEN: Are you, you suggest that the economy’s in a boom. It’s expanding very rapidly. How, how long do you think that lasts?
SECRETARY JANET YELLEN: Well, you know, my, my expectation has been that next year the economy would get back to full employment or something very close to it. And that still that remains my expectation. So, we are seeing people go back to work. I expect that to continue. There’s plenty of ability to spend that remains in the pipeline to drive continued growth. And, you know, there’re still really a lotta people who need to be put back to work. So I expect a recovery certainly to continue at a good, good, strong pace into next year.
SARA EISEN: We are seeing inflation. You, you know I’m gonna ask you. Always gotta ask you about that. But we got another very hot read this week.
SECRETARY JANET YELLEN: We did.
SARA EISEN: 5.4% from last year. Does it start to concern you?
SECRETARY JANET YELLEN: Well, look, we, we certainly wanna make sure that inflation stays under control over the medium term. And we need to be very attentive to what’s happening with inflation, developments. We are watching them closely. My read of what’s happening is that inflation is largely confined to sectors that were, that are now opening back up. We’re seeing big increases in air fare, air fares, hotels and there is bottlenecks and supply chain problems that have particularly affected motor vehicles. So if you look, for example, at last month’s inflation report, if you strip out motor vehicles and those sectors that were most affected by the pandemic and are now rapidly opening up, inflation was ran at about two, 2/10s of a percent, which is really consistent longer run with, with 2% inflation.
SARA EISEN: When do you think it’ll settle down?
SECRETARY JANET YELLEN: Well, I think we, we will have several more months of rapid inflation so I’m not saying that this is a one month phenomenon. But I think over the medium term, we’ll see inflation decline back toward normal levels. But, of course, we have to keep a careful eye on it. You know, measures of inflation expectations I think still look quite well contained over the medium term. Those expectations are actually a driver of price setting behavior. And so it is important that we monitor it carefully. But I believe fundamentally, you know, that this is something that will settle down.
SARA EISEN: Transitory?
SECRETARY JANET YELLEN: Transitory.
SARA EISEN: To use the word of the moment. So what do you say to people that, that wonder why you are pushing to add trillions of dollars more into the economy, through infrastructure and the American Families Plan? I know you’re going for, for structural changes here, but just adding fuel to that fire of inflation that’s already burning.
SECRETARY JANET YELLEN: Well, we, the American Rescue Plan has injected a great deal of spending, the wherewithal for spending, into the economy in order to promote recovery. And I think we’re seeing it having the desired effect as well as preventing scarring and harm to families and their finances. The, the new programs that we hope to see enacted are, spend out money over a ten-year period. It’s a much more modest, annual level of spending. It’s not on the same scale as the stimulus and rescue, the Rescue Plan. And it’s, it’s intended to address long term problems in the U.S. economy that we’ve ignored for too long. A deficit in public spending on infrastructure which is something that’s important for firms to be able to be productive, will have an effect on advancing growth in productivity. We’re trying to address climate change, which is a very serious threat that we all recognize we must address. We’re investing in our workforce, early childhood education and community college. Investments in childcare so that people can participate in the workforce, paid leave. All of these things are long term problems that we’ve had. And they’ll boost labor force participation and boost productivity. And they’re, they’re the investments. R&D is also part of–
SARA EISEN: Not a short term–
SECRETARY JANET YELLEN: These packages. It’s not a short-term shock. It’s these are long term investments to make our economy more productive.
SARA EISEN: What about housing? Is there overheating there?
SECRETARY JANET YELLEN: Well, we have seen a big increase in housing prices in part due to the changes from the pandemic and the low interest rate environment we have. I, you know, the lending that’s taking place is to credit-worthy borrowers. So, I don’t think we’re seeing the same kinds of danger in this that we saw in the run-up to the financial crisis in 2008. It’s a very different phenomenon. But I do worry about affordability and the pressures that higher housing prices will create for families that are first time home buyers or have less income. And a portion of the plans will be under consideration by Congress. Will be intended to boost affordable housing, the supply of affordable housing.
SARA EISEN: Despite the expanding economy and this rising inflation, we’re talking about Treasury yields, Treasuries have rallied over the recent weeks and yields are back down to the low 130s. How do you interpret that?
SECRETARY JANET YELLEN: Well, to my mind, that’s, the market expressing its views that inflation does remain under control. And that some of the longer term forces that were operative in our economy before the pandemic that we associated with secular stagnation, namely a large supply of savings and relatively weak investment demand, but although we’re in a complex transition period because of the pandemic, long term market participants haven’t forgotten about that and I think do see a world in which interest rates will remain at moderate levels and inflation will remain well under control.
SARA EISEN: There’s also the Delta variant, which is, which is spreading in this country now. How much do you think it threatens the recovery?
SECRETARY JANET YELLEN: Well, I do think it’s a risk. I think it’s not just a question of the United States. It’s a question of risks around the world. I am very concerned that, although advanced countries are making good progress with vaccination in many parts of the world and especially in low income countries, vaccination rates are extremely low as long as that’s true and this virus easily transmittable across borders, we really have to worry about the development of variants that could pose future threats. One of the things we discussed at the G20 in Venice is the need to really accelerate global programs in vaccination and we talked about some of the logistical problems that are preventing that. And the IMF, the WHO, the World Bank, the World Trade Organization have formed a task force to try to be more agile in sending vaccines to parts of the world where we see threats. But within the United States, we do have areas where vaccination is lower and I think we do have to worry about outbreaks in parts of the country.
SARA EISEN: Do you think we could see lockdowns again? Do you think our economy can, can handle going through something like that again?
SECRETARY JANET YELLEN: So, I mean, we have solid rates of vaccination in many parts of the country. But certainly it, it’s something that could, could happen in areas where vaccination rates are low so it really is critically important that we maintain progress on vaccinating more Americans.
SARA EISEN: So a lot of your views on the economy and on policy are, are very simpatico with Fed Chair Jay Powell. Will you be recommending to President Biden that he continue for a new term–
SECRETARY JANET YELLEN: Well, I–
SARA EISEN: Early next year?
SECRETARY JANET YELLEN: That’s a discussion I’m gonna have with the President.
SARA EISEN: It sounds like you guys are very much aligned. And, and Powell’s under a lotta pressure right now when it comes to the inflation story, potentially raising interest rates, papering the economy. Do you think he’s doing a good job?
SECRETARY JANET YELLEN: Well, look, I, you know, I’ve given you my own personal views on inflation. I have a lot of respect for the Federal Reserve. And it’s important for them to make independent judgments about what’s, what’s appropriate. I think, you know, the Fed has done, has done a good job.
SARA EISEN: Fair. I, I know you don’t wanna go there. My final question is about China because we have seen a real crackdown lately from the Chinese government on technology companies, Didi getting pulled from app stores because of a cybersecurity review just a little while after their IPO. What do you think China is up to here? Do you think they’re tryin’ to hurt U.S. investors?
SECRETARY JANET YELLEN: I think we have issues around data privacy and technology. And both sides are looking carefully at this, this set of issues.
SARA EISEN: Are you having any discussions with them at a high level?
SECRETARY JANET YELLEN: I, I have been in touch with Chinese counterparts. And we have discussed a range of issues. And I expect that that will continue.
