Full Yellen: ‘There’s A Path’ To Avoid Recession

[00:00:00] Speaker 1: If there's one overriding explanation for President Biden's sinking approval ratings, well, as James Carville once said, it's the economy, stupid. Wage gains are being gobbled up by inflation, which increased by 9.1% in June over last year, the highest rate in more than 40 years, which is a phrase we've said after every inflationary report over the last six months. Just this past week, Mr. Biden's approval rating on the economy in a new Quinnipiac poll was just 28%, with 66% disapproving. Inflation was by far the most significant issue cited. So let's dig into it. Joining me now is the Treasury Secretary, Janet Yellen. Secretary Yellen, welcome back to Meet the Press. [00:00:37] Janet Yellen: Thank you. It's a pleasure to be with you. [00:00:39] Speaker 1: Let me just start with this. Many businesses seem to be preparing for a recession. Should all Americans at home be preparing for a recession that many people think now is likely? [00:00:53] Janet Yellen: Well, look, the economy is slowing down. Last year, it grew very rapidly, at about 5.5%, and that succeeded in putting people back to work who had lost their jobs during the pandemic. The labor market is now extremely strong. Even just during the last three months, net job gains averaged 375,000. This is not an economy that's in recession, but we're in a period of transition in which growth is slowing. And that's necessary and appropriate, and we need to be growing at a steady and sustainable pace. So there is a slowdown, and businesses can see that, and that's appropriate, given that people now have jobs and we have a strong labor market. But you don't see any of the signs now. A recession is a broad-based contraction that affects many sectors of the economy. We just don't have that. Consumer spending remains solid. It's continuing to grow. Output, industrial output, has grown in five of the six most recent months. Credit quality remains very strong. Household balance sheets are generally in good shape. But inflation is way too high, and, you know, the Fed is charged with putting in place policies that will bring inflation down. And I expect them to be successful. The administration, for its part, is supplementing those Fed policies with things we can do. We've cut the deficit by a record $1.5 trillion this year. Releases of gas from the Strategic Petroleum Reserve are putting some downward pressure on gas prices. We've seen gas prices just in recent weeks come down by about $0.50, and there should be more in the pipeline. And hopefully we will pass a bill that will lower prescription drug costs and maintain current levels of health care costs. [00:03:29] Speaker 1: You seem pretty optimistic, it sounds like, from that answer that we're going to avoid a recession. But I want to throw in two data points that you didn't bring up. One was these reports on Friday about both in the euro space and in the United States, that we've seen some contraction of business activity. Throw in the uptick of unemployment, the weekly unemployment number there. Is that not the first sign of a coming recession, even if it's a mild one? [00:04:03] Janet Yellen: Well, you know, I would say that we're seeing a slowdown. We're likely to see some slowing of job creation. But I do, I don't think that that's a recession. A recession is broad-based weakness in the economy. We're not seeing that now, and I absolutely don't think that's necessary. But look, there are also risks we have to appreciate. Inflation is high, not just in the United States, but also in many of our neighbors, in the U.K., in Canada, in the euro area. Central banks are addressing that. We have a war in Ukraine that threatens potentially even higher oil prices than we're seeing right now. One of the things that I've been doing in recent weeks is working with our allies to try to cap the price that Russia receives for its oil, both to diminish the revenues that Russia gets, but also to keep Russian oil selling in global markets, so that when the next round of sanctions is put in place in December by the European Union, we're concerned that oil could be, significant amounts of oil could be shut in in Russia, leading to an oil price spike. So there are threats on the horizon. Growth is slowing globally. And I'm not saying that we will definitely avoid a recession, but I think there is a path that keeps the labor market strong and brings inflation down. [00:05:51] Speaker 1: Help us play armchair economists this week. There is a ton of data coming out this week. It's probably a fun week for an economist because we're going to have consumer confidence survey, the second quarter GDP numbers. We've got inflation numbers for June. Which is the indicator? What's the number you're most focused on that will give you a better indication of where this economy is headed? [00:06:17] Janet Yellen: Well, I look at all the data, and GDP will be closely watched. A common definition of recession is two negative quarters of GDP growth, or at least that's something that's been true in past recessions. When we've seen that, there has usually been a recession. And many economists expect second quarter GDP to be negative. First quarter GDP was negative. So we could see that happen, and that will be closely watched. But I do want to emphasize what a recession really means is a broad-based contraction in the economy. And even if that number is negative, we are not in a recession now. And I would warn that we should be not characterizing that as a recession. [00:07:13] Speaker 1: I understand that, but you're splitting hairs. I mean, if the technical definition is two quarters of contraction, you're saying that's not a recession? [00:07:20] Janet Yellen: That's not the tech. [00:07:22] Speaker 1: No? [00:07:22] Janet Yellen: That's not the technical definition. There is an organization called the National Bureau of Economic Research that looks at a broad range of data in deciding whether or not there is a recession. And most of the data that they look at right now continues to be strong. I would be amazed if the NBER would declare this period to be a recession, even if it happens to have two quarters of negative growth. We've got a very strong labor market. When you're creating almost 400,000 jobs a month, that is not a recession. [00:08:03] Speaker 1: Jana Yellen, the Secretary of Treasury and obviously the former Chair of the Federal Reserve, always appreciate getting you on and getting your perspective. Thank you. Thanks, Chuck. Thanks for watching our YouTube channel. Follow today's top stories and breaking news by downloading the NBC News app.