Yellen Dismisses Treasury-Market Jitters, Sees ‘Solid’ Recovery
Treasury Secretary Janet Yellen dismissed recent moves in the bond market that have signaled concern about monetary policy makers squelching economic growth, and expressed confidence in the continuing recovery from the Covid-19 pandemic.
Asked in an interview with Bloomberg News Sunday if she was worried by sharp movements in Treasury yields, she responded, “No, not me. I think what we’re going to see is a good, solid recovery. The unemployment rate has gone down considerably, and this is nothing like the recovery from the 2008 financial crisis.”
The U.S. yield curve -- as measured by the gap between two-year and 10-year Treasury yields -- flattened the most last week since the summer of 2020. The move has been triggered in part by expectations the Federal Reserve will start raising interest rates sooner than previously anticipated, to quell inflation.
Yellen, who was chair of the Fed from 2014 to 2018, declined to comment directly on monetary policy, but offered an oblique vote of confidence in how the U.S. central bank plans to approach the issue of removing its stimulus.
“The Fed has a framework that it’s using to decide what to do,” she said. “They’ve made clear they’re going to begin tapering asset purchases,” she noted. She spoke days before the Fed’s Wednesday policy decision, where it’s forecast to unveil the phasing out of its quantitative-easing program -- a precondition for raising rates.
Yellen noted that Fed Chair Jerome Powell has said he believes the current bout of inflation will diminish over time, a view that aligns closely with hers.
Yellen spoke during a flight departing Rome, where she attended a Group of 20 summit capped by leaders of the world’s biggest developed and emerging economies endorsing a global corporate-tax deal. She was heading to Dublin for meetings with Irish government officials, who until recently opposed that tax agreement.
President Joe Biden and his Treasury chief attended the Rome meetings amid the backdrop of a sharp slowdown in U.S. job growth, undermined by the spread of the delta variant of Covid-19.
While the 4.8% unemployment rate is well down from the near-15% recorded in April last year, and not too far off the pre-pandemic level 3.5%, that’s partly thanks to Americans having left the workforce. The proportion of working-age Americans who have jobs or are looking for work is lower now than any pre-Covid readings since the 1980s.
Many economists have said some who lost work during the pandemic may have permanently left the job market.
Yellen said the longer-term economic programs that Biden is pressing Congress to enact could help strengthen the rebound from the Covid-19 crisis.
“The main impact is going to be on long-term potential output,” Yellen said of the social-spending package that lawmakers are negotiating. “I’m seeing especially from the child-care subsidies, the universal pre-K, I’m seeing support for participation, particularly of women, and that tends to boost growth.”
Competing wings of the president’s Democratic party have been wrangling over the elements to include in a $1.75 trillion social-spending bill, paid for mostly with tax hikes. Progressives have effectively blocked a vote on a $550 billion bipartisan infrastructure package passed by the Senate, using it as leverage to shape the bigger bill.
Yellen said the twin packages should create jobs and help lure many Americans off the sidelines of the labor market. She also expressed confidence that job-market conditions are improving.
“Households are reporting -- and we’re seeing in the data -- that people feel good about their ability to get a job,” Yellen said. “There are people who are out of the labor force who haven’t come back in -- whether it’s for health-related reasons or childcare or schooling. Eventually some of those people I would expect will return to the labor market.”
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