Secretary Yellen on Inflation, China Tariffs, Swap

I'm sitting down with Treasury SecretaryJanet Yellen. Thank you so much, Madam Secretary, forjoining Bloomberg. Thanks for the invitation.We're in Stafford County. This is the county that Trump won in2016, but flipped to Biden in 2020. And you're here to talk about the fiscalagenda that we've seen out of this administration, bringing highlightingyou're going to highlight this millions of dollars to broadband in rural areaslike Virginia. Yet when you look at consumer sentimentrecent on Friday, the Michigan survey, when you look at recent polls, inflationremains top of mind for American voters.

How do you get them to potentially lookat the way you look at how the economy is working?Well, the cost of living in many areas is very high, and it is a concern toAmericans. And it is President Biden's top priorityto do all he can to bring down the cost of living.While I'm here in Stafford County, though, is it really illustrates one wayin which that's going to occur. I'm looking atan area that has been deprived, has had really no access to the Internet at all,sufficiently remote part of Virginia. And President Biden has made acommitment that.

Every American household and businessshould have access to the Internet and funds that were included in the Americanrescue plan that was passed in 2021. And then later the bipartisaninfrastructure bill provided substantial funding to make sure that the Internetis available everywhere and that and that it's also affordable.And what we saw during the pandemic is that access to the Internet is criticalto education, to jobs, to health care.And it's really critical tools that every family needs to have access towind. So making that available and making sureit's affordable, which is what I'm going.

To be seeing here today, a project thatis has succeeded in reaching about 700 households in this area.This is one way in which President Biden's working to lower the cost ofliving. But there are many other areas as well.Prescription drugs brought down the cost of insulin to $35 a month, working veryhard to bring down the cost of energy. At the same time, we're protecting theenvironment and bolstering the finances of households by extending the child taxcredit and earned income tax credit. If inflation, though, is still top ofmind of American Americans today, why then tomorrow or it's likely expectedthe Biden administration is going to.

Lift the walls even higher when it comesto Chinese goods. Why then raise tariffs?The president believes that it's critically importantfor the United States to have a role and a presence in strategic industries likesemiconductors and like clean energy that are going to be the foundation ofgood jobs and national security in the decades ahead.He believes it's unacceptable, as I do, to be completely dependent on China inthese areas. And he wants to make sure, given thatChina is really not playing by the rules in the sense they have enormoussubsidies in critical areas of advanced.

Manufacturing is resulted inovercapacity. He wants to make sure that the stimulusthat's being provided through the Inflation Reduction Act to support theseindustries in these are industries that are creating good manufacturing jobs inparts of the country that have been overlooked or have suffered fromdeindustrialization in the past. The president wants to make sure that heprotects these investments. And I don't want to get ahead of the 301review on tariffs, but this is a commitment that President Biden hasmade. And I agree with that.I was in China just a couple of weeks.

Ago and made clear that.We would not allow Chinese overcapacity to harm our emerging industries.Does the U.S. want a trade war, though, with China?We we believe that we should have a deep and productive and that we do in mostareas trade and investment relationship. We're working to stabilize our economicrelationship. We do not wish to disengage from Chinaeconomically, but we do think that the playing field should be fair.And China engages in unfair practices like massive subsidies of industriesthey have decided are critical. And those are cases where we will act toprotect ourselves.

We've seen Beijing in the past, though,respond and it's become tit for tat. Are you expecting a response?Could they go after Tesla or maybe American farm products?Well, President Biden believes that anything we do should be targeted to ourconcerns and not broad based. And hopefully we will not see asignificant Chinese response. But that's always a possibility.China is big focus going into the election.We hear the former president also talk about he wants to put a 60% importtariff potentially on all Chinese goods. He also over the weekend was talkingabout the Trump era tax cuts that are.

Set to expire next year.Trump over the weekend said Biden will give you a tax hike.If it was up to Trump, it would be a cut on upper middle, lower and the businessclass. Are you envisioning these tax cuts to beextended? Well, what President Biden has said, andI certainly strongly agree with it, is that we want to make sure that workingfamilies earning under $400,000 are not faced with a tax hike, but all of thewealthy individuals and corporations that benefited from the Tax Cut and JobsAct, there are provisions that are going to expire.The president, for the for the sake of.

Working families and tax fairness,believes that the rich and corporations should pay their fair share.And I would say that CBO, the Congressional Budget Office, recentlyestimated that extending all of the provisions of TCJA would cost $5trillion over the next decade. And we really do need to be on afiscally sustainable path. The president has already signed in, putinto effect $1,000,000,000,000 of deficit reduction over the next decade,and he's proposed in his 2025 budget an additional $3 trillion worth of deficitreduction. It really is critical that we are in afiscally sustainable path.

So TCG A the bulk of the benefits wentto the wealthy and to corporations. It blew blue away the deficit.It caused huge increase in the deficit. It promised an investment boom and wedidn't see it. So should tax revenues be used to lowerthe deficit? Yes.And is that the plan for Biden or where they go to social programs?Well, President Biden believes it's important to invest in areas of theeconomy that will help us grow and create good jobs.And I his budget is one that proposes helping working families and undertakinginvestments that are critical to our.

Future, but also raising taxes onwealthy individuals who he believes are not paying their fair share andraising taxes on corporations that are doing extremely well.And he would both invest in America and help working families and lower thedeficit. The US at the moment is spending just asmuch every year at this point on paying off our debt as it is funding ourmilitary, just the US in lower interest rates in order to balance the budget.Well, we have to take the interest rate paththat prevails in the economy, as given the President's budget incorporates theassumption that interest rates will be.

In line withthe projections of private sector forecasters.So there has been an increase in the interest rate path.It's assumed and. It's it's necessary to make sure that weare in a fiscally sustainable path. Of course, the higher interest rate passmakes that more difficult. But the president's budget would holdthe I see the key metric that summarizes the burden of deficits is being itsinterest cost. And the president's plan would holdinterest costs at historical levels and not allow them to rise above that.The federal deficit, though, now is at a.

Level we really don't see outside ofrecessions. Is anyone in Washington seriouslyconcerned about this? Real conversations about bringing debtback to a sustainable path? Well, as I said, the interest cost ofthe debt is a good way to measure its burden.Generally, interest rates have been lower in spite of recent increases.They have been lower than they were in past decades.And that means that metrics like the ratio of debt to GDP,we can probably manage and have a fiscally sustainable path with somewhathigher ratio of debt to GDP.

But it's important to make sure that thereal interest burden of the debt, which is a measure of the burden it's placingour economy we have to bring, make sure that that stays in a historically normallevel. This isn't just a complain of fiscalhawks either. This is a complaint I heard a lot at theIMF World Bank meetings. A lot of countries are lining up,concerned about the path that the US is on and what also that means for the USdollar hurt a lot of people reminiscent of the Nixon Times, say the US.It's our currency, but it's your problem.Is it right in that context then that.

Other countries should be intervening?Well, our our position is that major countrieslike those in the G7 and this has been agreed in the G7, should have marketdetermined exchange rates. Andif intervention occurs, it should be rare, will communicated and largely toaddress excessive fluctuations in currencies.That's the system that we essentially have in place, and I think it's workedwell. And of course, differences in the stanceof monetary policy across countries is a factor that influences the value ofexchange rates.

I'm sure this is going to come up onyour next trip. You're going to be meeting with your G7partners in Italy. There have been reports that Japan hasintervened twice. You've said it should be communicated,this should be rare, but they actually haven't worked.So why does it matter? Well, look, I'm not going to comment ona situation in a specific country. I just want to leave.It is when there is excess volatility, it's it's it's possible for countries tointervene. It doesn't always work without morefundamental changes in policy.

But we believe that should happen veryrarely and be and be communicated to trade partners if it does.Just on a final point and in this effects world are going to be your G7partners. Do you have a currency pair that youwatch the most? I watch certainly the value of thedollar views of the major currencies like the euro, the yen, the renminbi.But what currency developments generally?

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