WHEN: Today, Wednesday, January 8, 2025
WHERE: CNBC’s “Money Movers”
Following is the unofficial transcript of a CNBC exclusive interview with United States Treasury Secretary Janet Yellen on CNBC’s “Money Movers” (M-F, 11AM-12PM ET) today, Wednesday, January 8 for her exit interview. Following are links to video on CNBC.com: https://www.cnbc.com/video/2025/01/08/treasury-secretary-janet-yellen-covid-stimulus-may-have-contributed-a-little-bit-to-inflation.html and https://www.cnbc.com/video/2025/01/08/treasury-secretary-janet-yellen-its-hard-to-see-how-the-math-on-doge-works.html.
All references must be sourced to CNBC.
SARA EISEN: Joining me here exclusively at the Treasury Department is the Treasury Secretary, Janet Yellen. Thank you so much for having us here.
JANET YELLEN: Pleasure. Thanks for the invitation, Sara.
EISEN: Yeah, we were just reminiscing here early 2021, in the depths of COVID, testing in the room behind me to get in. A lot’s changed.
YELLEN: A lot has changed.
EISEN: The economy has been resilient, and you’ve been right on this point. There were unexpected recession, interest rates are rising, inflation was raging, and yet, amazingly, the economy has maintained this 2-3% growth. The question is, why was it a losing issue for the Democrats in the election?
YELLEN: Well, we have seen really solid growth, and we did experience a surge in inflation. And most people who are alive now never lived through an episode like that. The level of prices is about 20% higher than pre-pandemic. And of course, the rate of inflation has come way down. It’s now pretty close, quite close to the Fed’s target. So prices aren’t continuing to rise at anything like that pace. It’s now very close to normal. But people, I think, have remembered these big price increases, and, you know, they feel it had a very adverse effect on their cost of living. Now, at this point, wages have also gone up a lot. And if you compare the typical household now to pre-pandemic, they are ahead in real terms. They can buy the same basket of goods they could have in 2019 with, we estimate, about $1,600 left over to spare. So in real terms, wages have outpaced inflation. And now, over the last year or more, on a consistent basis, wage increases are outstripping inflation. But there was a period in which price increases were very high.
EISEN: Yeah, it still feels like that, because we remember the prices from 2019 before COVID.
YELLEN: Right.
EISEN: And in some places, especially at the grocery store, prices are so much higher than where they were then. When you look back on it, do you have any regrets about all the fiscal stimulus and extra spending put in place, fire adding fire, fuel to the fire when it comes to sparking that kind of high inflation?
YELLEN: So I think it’s important to remember what the world looked like when we entered the beginning of the Biden administration. We had a pandemic that was raging out of control, and thousands of people were dying on a monthly basis. And the unemployment rate remained extremely high. And people — many people who had lost their jobs, although they were being supported by unemployment insurance, were in a position where they could lose the roof over their heads. And we saw people in cars lining up at food banks to make sure that they could feed their families. And it was really important to spend the money to alleviate that suffering, to make sure that small businesses didn’t go out of business. Because of the pandemic, people would have lost their livelihoods, their businesses that they had invested in. And we wanted to alleviate all of that suffering. We had seen in past downturns like the Great Financial — after the Great Recession — during the Great Recession, that people who were unemployed for a very long time become scarred. They become alienated from the workforce, and they can never get their lives, many of them, back on track. So I call that scarring. And we really wanted to avoid that. And I think the spending was necessary.
EISEN: Did it spark the inflation?
YELLEN: It may have contributed a little bit to the inflation. But by and large, the inflation was a supply-side phenomenon. The pandemic had led to shortages of goods coming from China and other parts of the world, had shut down, you know, left firms like our auto firms without enough semiconductors to be able to build cars. So there was simply huge supply chain problems. And goods, critical goods that people wanted, were in absolute shortage. And I think an important factor in the inflation was that these shortages started pushing up prices a great deal.
EISEN: But then it went into services, too. And right now, even as we sort of look to this last mile, most of the inflation is in the services part of the economy.
YELLEN: Well, wages have increased, but they’re not increasing at a pace that threatens inflation. What we’re seeing in part in the service sector is a continued impact of pandemic problems. You know, for example, the huge increase in demand for housing. Slowly, it is passing through into rents. So rental price increases for new apartments and houses, they’ve moderated. But it takes a long time before all the renters in the country see their rents adjusted up to current levels. Similarly with insurance, where we’ve seen big recent increases. Well, the price of cars went up. The economy got back on track. The cost of repairing a car and getting the parts for it has gone up. And so for a prolonged period of time, the pandemic is leaving its impact on price increases as these adjustments continue to take place.
EISEN: Is 2% in sight? Because it’s been a little sticky here around these levels.
YELLEN: Yeah. So the CPI inflation rate is just a little bit above 2%. Similarly, for the Fed’s index that they watch, core inflation, excluding food and energy, is a little bit higher. And we haven’t seen too much progress in the last couple of months. But I feel pretty convinced that we’re on a downward path and that the labor market is not an ongoing source of inflation. The labor market has cooled and is in a very similar good state like it was prior to the pandemic.
EISEN: So I wonder what you make of these rising Treasury yields today. I mean, surpassing 4.7% on the 10-year, pushing against 5% on the 30-year. What does that tell you?
YELLEN: Well, one factor is the likely future path of short-term rates, which market participants try to divine when they decide what they’re willing to pay for a longer-term bond. And when we see strong data on the economy, continued strong growth and a strong job market and some, over the last couple of days, surprises to the upside on indicators of the performance of the economy, that suggests that the path of interest rates going forward may be a little bit higher than people expected. I think there’s also uncertainty that has increased about where the economy is going, what future policy will be and the so-called term premium in interest rates over the last number of months looks like it’s gone up as well although from abnormally low levels.
EISEN: Should the Fed stop cutting rates?
YELLEN: I mean, you know, it’s my last couple of weeks.
EISEN: I always try, I know.
YELLEN: But I’m still not going to comment on Fed policy. I think the Fed does its very best to pursue the two objectives of price stability and full employment and I leave their judgment to them.
EISEN: Well, I can’t wait until after you leave and you can comment on both policies. But I’ll ask it another way. Has it surprised you that rates have gone up as the Fed has started cutting rates?
YELLEN: Well, one factor is that as I said the term premium that was holding long-term rates at very low levels is, has begun to normalize and the US economy is simply doing very well. The economists called the US economy the envy of the world. Growth continues to surprise to the upside. We have solid consumer spending investment spending and the like and that’s in spite of the fact that rates are higher than well above where they were during the pandemic.
EISEN: What about the deficit? I wonder how much, I mean there is increasing concern about persistently high long-term deficits.
YELLEN: So I do believe that fiscal policy needs to be put on a sustainable course. That has been a priority for the Biden administration. We submitted a budget to Congress in our last budget for 2025 that proposed $3 trillion in deficit reduction over the last, over the next 10 years. I think that’s necessary to get fiscal policy onto a sustainable course. Of course, we’ve also been building up the capacity of the Internal Revenue Service both to provide decent customer service and to modernize its technology but also to be able to better collect the taxes that we do. And I think it will be very important to keep that on track. If all the money that has been was allocated in the Inflation Reduction Act to modernize the IRS if all of that were repealed as some who have proposed that would be an $800 billion hit to the deficit as CBO calculates it. And in a higher interest rate environment, it’s the interest costs have gone up considerably and that’s another reason why we need tighter fiscal policy.
EISEN: I think a lot of people would challenge what you just said about it being a priority for the Biden administration especially when you just turned in a 2024 fiscal year deficit of $1.83 trillion outside of COVID, outside of a financial crisis, outside of a war with US forces. That’s unprecedented.
YELLEN: Well, interest rate increases, have led to higher cost of servicing the outstanding debt. That’s one factor that’s been involved but discretionary spending is at historically low levels. We do have an aging population, we’ve known for decades as that occurred that that would boost the cost of Medicare, Social Security and Medicaid and that process is ongoing as baby boomers retire. And these are all factors that are creating an issue of fiscal sustainability. And I’m disappointed that we’ve not been able to work with Congress to do very much on this front. President Biden did sign a bill that reduces the deficit by a trillion dollars over 10 years when the debt limit was raised. But we’ve proposed substantial additional deficit reduction and I think it’s important for Congress to take that up. Now many of the features of the provisions of JCTA that was passed in 2017 will be sunsetting at the end of this year. And this will be an important issue that Congress and the new administration will need to take up. And I certainly have heard that there are members of Congress who would just like to see all of those provisions extended and possibly do even more to cut taxes. And CBO has told us that that would boost the deficit if that’s done by five trillion dollars over 10 years. So my hope is that this will be done in a responsible way maybe focusing on middle class tax cuts and looking for additional revenue raisers. You know, one of—
EISEN: It’s hard to imagine Congress getting serious about the deficit without some sort of crisis or bond vigilantes, isn’t it?
YELLEN: Well, I would hate to see it come to the bond vigilantes. I think investors around the globe count on the United States to be responsible in managing its fiscal policy and not to rely on market responses to produce that deficit reduction. And I certainly hope that the new administration will take this seriously. You know, as I said, an easy thing to do is to make sure that the Internal Revenue Service is adequately resourced so they can collect the taxes that are due under current tax law. And it’s estimated that something close to a trillion dollars a year of taxes that are due are not being collected. So that is a very easy place to look for deficit reduction.
EISEN: What about DOGE? What about Elon Musk and his Department of Government Efficiency which whose mission is to shave $ 2 trillion in government spending through waste programs and other cuts. Is that realistic?
YELLEN: Well, it’s hard to see how the math on that works. Discretionary spending namely what’s funded through appropriations is at close to historically low levels as a share of the economy. Defense is around a trillion dollars spending and non-defense discretionary spending is a little bit less than that closer to nine hundred, nine hundred billion. So that’s two trillion right there and many feel that defense spending should go up. Mandatory spending which includes Social Security Medicare and Medicaid, you know, these programs are important to Americans. Both Democrats and Republicans have indicated support for these programs and they’re very popular among Americans. And so it’s hard to see where there can be substantial cuts there. And that takes one to taxes and—
EISEN: They want to keep them lower. Yeah.
YELLEN: Well, so it’s hard to see.
EISEN: You don’t buy it?
YELLEN: Well, it’s hard to see how you could solve the deficit that way.
EISEN: What about the debt ceiling? You just warned that we are going to hit the debt limit, what, in the next week?
YELLEN: Sometime between January 14th and 23rd. We expect to hit the debt limit and then what happens is that Treasury has a series of measures that they can take.
EISEN: Should we just get rid of it? I mean, is Trump right on this? You’ve called it disruptive in the past as well.
YELLEN: I have for a long time. I’ve said that I think the debt limit does not play a constructive role in fiscal policy. The real decisions that Congress makes have to do with expenditures transfers and taxes and the Treasury Department, the president and the treasury secretary are charged with carrying out those spending and tax plans. And when there are deficits, it’s necessary to issue debt to finance and make good on past decisions that Congress has made to arbitrarily come along and say but you can’t issue the debt that’s necessary to fund expenditures that Congress has authorized is really not a constructive situation. And I don’t believe it plays a constructive role in having a good and stable fiscal policy.
EISEN: One of the other highlights of your tenure has been your visits to China. And I was there, I got to see, you know, on your last visit how well received you were. I mean, they were obsessed with what you were ordering for dinner and they were praising the skill that you used when it comes to chopsticks. So I am curious to ask how you felt about the recent hacking of the Chinese, of the Treasury Department and reportedly of senior offices including your own and whether you took that as an insult?
YELLEN: Well, we have reported as a major incident that Treasury was hacked. It involved a cyberattack by a state controlled Chinese threat actor on a third-party software provider that we use and we’ve detected this and we’ll be doing detailed reporting to Congress in line with our responsibilities. I had a video meeting with my counterpart Vice Premier He Lifeng just on Monday night. And this is something I certainly raised. And it is of course a tremendous concern to us that there was no access to secure or classified information. This affected a number of work stations at Treasury. But it’s not something that builds confidence in our relationship. And we will and have taken action against perpetrators of cyberattacks from China and other countries. Just last week we placed sanctions on a cyber attacker from China. So we will act but it doesn’t help our relations. But I do think we have built a much more constructive and stabilizing relationship with China over the last couple of years. And I believe my visits have played a positive role. You know, before 2023 there were almost no contacts between senior US and Chinese officials. And I think that’s a dangerous situation because misunderstandings can take place. There are no channels really to voice concerns over behavior of the other party. And of course, it’s necessary in some areas for China and the United States as the world’s two biggest economies to cooperate, to collaborate. And it’s important both for China and the US and it’s important for the rest of the globe. And I do think our channels of communication have improved substantially. You know, we have very frank and tough conversations and it enables me to explain what our concerns are with Chinese policy. You know, all along in my visits to China and this would include my session on Monday evening. I’ve expressed concern about China’s overall macroeconomic policy.
EISEN: I know. Yeah.
YELLEN: That is, you know, just a tiny share of GDP relative to other economies goes to consumer spending. And China is using vast subsidies to try to support a set of advanced manufacturing industries.
EISEN: No, I know, that was a big thing for you on the trip. I mean, we’ll see where this goes. But just on the on the China front, I do want to understand the decision on US steel because it feels like China controls, what, 60% of the world’s steel production. We have a deal here for one of our closest allies, Japan, a company to buy a US steel company and invest billions of dollars. How is that a threat to national security? Because you do Chair the CFIUS committee that was split and then President Biden blocked that deal.
YELLEN: So this is an important case. I think as you know there is ongoing litigation over this case.
EISEN: Oh yes.
YELLEN: And as head of CFIUS, I regret there is very little substantive that I can say to you about this other than that CFIUS did analyze the specifics as it always does of this situation and prepared a thorough analysis to go to the president. CFIUS advises the president.
EISEN: So was it fixed by President Biden with his public remarks against the deal from the beginning?
YELLEN: I’m not going to comment on the specifics. We provided an analysis as we’re required to the president and the president just decided this issue.
EISEN: I know you’ve had a conversation with Scott Bessent, who President-elect Trump has nominated to take your position. What’s your impression of him?
YELLEN: Well, he’s somebody who certainly had a good deal of financial market experience and for somebody who’s going to be managing roughly $35 trillion of Treasury debt and responsible for financing the government and playing a key role in economic policy. I think that’s a very helpful background. So I’m pleased to see somebody with experience who will be taking over presumably if confirmed by the Senate.
EISEN: And what about you? What what’s next for you?
YELLEN: Well, I’m going to take a vacation for a little bit—
EISEN: For the first time in a while.
YELLEN: It’s been a while since I’ve had a good vacation and probably I will go back to the Brookings Institution and in some capacity and just do some writing and reflecting on my experiences over the last four years.
EISEN: It is pretty amazing that you were the first female Fed Chair in history and the first female Treasury Secretary in US history. I do wonder if you’ve experienced if you think you’ve experienced any unfair treatment or can, or criticism because of being a woman?
YELLEN: So I would say that I have had enormous opportunities and partly because we have focused more on how few women reach the most senior levels. And I think government and our administration and past administrations have made a real effort to make sure that the pool of people who are considered is diverse. And I am really privileged with the opportunities that I’ve had. I feel strongly that economics can contribute to good economic policymaking. And I’ve been honored and privileged to have this opportunity. These many opportunities and, you know, what’s been really salient to me and all the work that I’ve done at the Fed and here at Treasury is how outstanding our civil servants are.
EISEN: You’ve always had that?
YELLEN: The really national treasure. They are a repository of unbelievable expertise and experience and mainly what you do in jobs like Fed Chair and Treasury Secretary is work closely with a staff of experienced individuals who are really highly motivated and capable in trying to make the best possible policy. It’s the thing that I’ve most enjoyed about the work that I’ve done here and at the Fed. And—
EISEN: Which job did you like better?
YELLEN: They’re both different. They were both, they were both terrific jobs. I really wouldn’t want to try to rank them.
EISEN: I think I’d prefer a Fed Chair.
YELLEN: You know, they’re, here, there is a vast set of responsibilities and, you know, ranging from sanctions to international responsibilities, tax policy, administration of, you know, we had the Treasury administered roughly a trillion dollars’ worth of AARP programs from rental assistance to, we’ll try getting out the child—
EISEN: Tax credits.
YELLEN: Credits on a monthly basis and it’s a really critical range of responsibilities. And I’ve enjoyed all the jobs that I’ve been fortunate to hold.
EISEN: Well, we are very fortunate that you have taken the time to talk to us today and all the times throughout the last four years. So thank you very much for having us.
YELLEN: Thanks so much, Sara. Appreciate the invitation.
EISEN: Yes. That is Treasury Secretary, outgoing Treasury Secretary Janet Yellen.
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