Treasury Secretary Janet Yellen on what new inflation data means for Americans

Despite inflation dropping and consumer prices cooling, many Americans say they’re anxious about the economy.

Inflation is now at 3.4%, down from more than 6% a year ago. Biden Administration officials including Treasury Secretary Janet Yellen argue things are improving, yet prospective voters in this year's election tell pollsters they feel anxious about the economy.

“It's very rare to have a period in which inflation comes down and the economy doesn't experience a recession. But we've not seen that,” Yellen says. “And in that sense, I consider this to be a soft landing.”

Take a young couple with a median household income of around $70,000. Can this couple be confident that their paychecks can keep up with rent, utility bills, cell phone service and car insurance? 

“I know that many young couples of the type that you describe are feeling stressed about making ends meet. They lived through a pandemic, which was extremely stressful, and a period in which inflation was high. Food prices rose substantially, apartment rentals. I think that's influencing their views on the economy. But what they're seeing now and have seen over the last year, energy prices are down significantly.

“A gallon of gas [is] down. The prices of used vehicles [is] down substantially. Their wages are going up and prices are rising less quickly. So they are getting ahead. And if they compare where they are now, the typical middle-income household can buy the same basket of goods that they bought in 2019 and have $1,000 left over to save or spend. And as time goes on if this good performance continues, they'll see themselves getting further and further ahead.”

Still, many Americans tell pollsters that they're not feeling prices drop. How do you explain that?

“I think when people are asked about their own situation, they tend to be pretty positive about it and some of the concerns that they express have to do more with their neighbors and the economy as a whole. And if you actually look at their spending patterns, spending has really been quite strong. And so people are acting as though they feel okay about their own situations, but are worried about the economy.

“We lived through a period of high inflation, and I think it's going to take a little while before people feel confident that that's over and that they'll be systematically getting ahead. And we're seeing the beginnings in surveys, and I hope and believe that that will continue to improve. “

20 years from today, what jobs will be available to young people entering the workforce?

“We know that there are good jobs available to those who have a college education, but the president's focus is to make sure that a young person doesn't have to have a college education in order to be able to earn a good wage, and that they don't have to live on the coasts to get a good job.

“Clean energy jobs, the jobs that are being created in semiconductors. More than $600 billion in private investment in clean energy and manufacturing has been announced since the start of this administration. And much of it is spurred by three major bills that have been passed: The bipartisan infrastructure bill, the chips and semiconductors bill, and the Inflation Reduction Act, which has these clean energy incentives.

“I've been traveling around the country looking at some of the investments: critical mineral processing expanding in North Carolina, the battery belt in the middle of this country, chips factories in Arizona. A young person looking to complete their education 20 years from now should really find it possible to get very good-paying jobs.”

Where is economic inequality headed in this country?

“One of the things that we need in order to reduce that gap, and it's something that was a great strength of our country in the aftermath of World War II, were investments. And we became, especially during the Trump years, but also before then, focused on trickle-down economics. And I think that's a failed strategy.

“The Biden-Harris economic agenda is really to invest across our economy. For the first time, we are throwing real resources into upgrading our roads, our bridges, our airports, broadband, so that our economy can be efficient, and making sure that we train people for these good jobs that will be associated with a clean energy economy.”’

You have acknowledged that the Biden administration and the Federal Reserve got it wrong when they suggested inflation would be transitory. What have you learned for future policies about inflation from what happened? 

“Inflation, first of all, inflation has come down. I think the word transitory suggests to many people that it's something that's a matter of days or weeks. And in our economy, it lasted for over a year. So I regret using the word transitory.

“But inflation has come down very substantially. The labor market is functioning well. We've had 23 months in a row, and this is the first time we've had this in more than 50 years, in which unemployment has been running under 4%. If you look at the last six months, as inflation's come down, that gives you a better sense of where are we now.”

How do you deal with unpredictable things happening in the economy?

“I think making sure that you do your homework so that you have a sound basis to be able to deal with the unexpected. A recent example of that is the pressures that we saw in the banking system last March, when Silicon Valley Bank suddenly failed, the most dramatic bank failure we've had. It required rapid and forceful intervention. The fact that this is something I've thought about and worked on and dealt with over the course of a lifetime, I feel, gave me the tools to be able to pretty quickly sort through with my colleagues what we should do. And I think we managed to navigate that.

“Being prepared is the best way to deal with the unexpected.”

Chris Bentley produced and edited this interview for broadcast with Todd Mundt. Allison Hagan adapted it for the web.