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Janet Yellen: The U.S. Is Doing Very Well

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Following is the unofficial transcript of a CNBC exclusive interview with United States Treasury Secretary Janet Yellen on CNBC’s “Closing Bell: Overtime” (M-F, 4PM-5PM ET) today, Tuesday, October 11th. Following is a link to video on CNBC.com:

Treasury Secretary Janet Yellen: The U.S. Is Doing Very Well

SARA EISEN: Hi Scott. Well, the IMF World Bank meetings of financial policymakers kicking off here in Washington, D.C. where Secretary Yellen has tons of meetings with her foreign counterparts and the biggest topic, the growing warnings and worries about the global economy. So, I started by asking the Treasury Secretary about her level of concern.

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SECRETARY JANET YELLEN: Different countries face different stresses but at the IMF has downgraded their outlook for growth in many parts of the world.

I think much of the strain we're seeing reflects the impact of Russia's brutal war against Ukraine, which has raised energy prices, of course, he's weaponized natural gas, which is causing huge price spikes in energy strains in Europe.

We still see the impact of Covid in China and the slowdown in Chinese growth and with high inflation and tightening monetary policy in many advanced countries, emerging markets from really all of these factors are suffering many stresses so there's a lot to talk about, but from the perspective of the United States, I think the United States is doing very well.

And we had an employment report just last Friday that shows we continue to have a very resilient economy. An economy, of course, that’s slowing which is something we expected fully after a very strong recovery, we essentially erased the shortfall and output from its potential.

The ARP accomplished that we would expect slower growth but, you know, we still had over 260,000 jobs last month and have a very strong job market although we’re beginning to see some signs that pressures in the labor market are easing.

So I remain encouraged the US economy is strong. And as I've said on other occasions, I think there's a path through. Obviously inflation is too high, it's a priority to lower it. I think there's a path to accomplish that while maintaining a healthy labor market.

EISEN: Is the US really strong right now? Economically, the stock market has gotten crushed, so have US bonds. CEO of the biggest bank, JPMorgan, Jamie Dimon told us this week that he expects a US recession in the next six to nine months.

YELLEN: Well, look, we’re gonna see but can't be sure but I'm very encouraged by a continued strong labor market. People feel good about the labor market. They're of course concerned about inflation, and we need to bring that down.

But household balance sheets remain strong, firms even with rising interest rates have debt burdens that are by and large, manageable. And while there's been a great deal of financial market volatility and some concerns about liquidity and the potential from liquidity streams in the Treasury market.

We really haven't seen signs of financial stability in the United States and our financial markets they continue to function well, and we're not seeing signs of deleveraging of the kind that sometimes occurs in an environment of tighter monetary policy. So I think the US economy continues to do well.

EISEN: On the bond market point, you're not seeing any strains on liquidity because the market has been extremely volatile?

YELLEN: Well, there have been a lot of underlying shocks, decisions, for example, or OPEC’s unfortunate, very unfortunate and I think wise decision to reduce oil production.

So there have been shocks and shocks relating to Russia, Russia's war against Ukraine and other, you know, policy shocks. Obviously, I'm not going to talk about Fed policy, but it's clear that the Fed is committed.

They've set out a plan for how they're going to tackle inflation and I think that's pretty well understood by the market. So while, you know, there is some concern about liquidity in the markets, I don't think we've seen anything that rises to the level of a serious concern.

EISEN: What about with the US dollar which has gotten super strong and we started to see emerging markets, central banks and even the Bank of Japan have to intervene? What do you make of the dollar strength right now?

YELLEN: You know, I think it's a natural result of different paces of monetary tightening in the United States and other countries. Differences in economic strength resulting from different shocks that countries are dealing with.

And the United States is, in a way doing about the best among the advanced countries. And also remember, the dollar is a safe haven. So when times are uncertain, we experience capital inflows into our safe markets and all of those things are pushing up the dollar vis-a-vis a broad range of countries.

EISEN: You seem okay with it and I'm wondering because there are increasing calls for some sort of global coordinated intervention, as you know, really hard for a central bank to go at it alone against the multi trillion-dollar foreign exchange market. Would, would you consider something like a Plaza Accord where the US helps some of its allies deal with this?

YELLEN: Well, I’ve said on many occasions that I think a market determined value for the dollar is in America's interest, and I continue to feel that way and I do think that the pressures we're seeing largely reflect fundamentals and policies that are, by and large, appropriate, of course, one of the things we always do in the IMF World Bank meetings is consult with other countries on what they're seeing and looking at their policies.

We want to make sure globally all the policies that countries are taking add up to something that works for the global economy as a whole. And that’s a role we also look to the IMF to play so we certainly will have that discussion.

EISEN: About currencies.

YELLEN: Well no, about the set of policies and whether through appropriate understanding that there are spillovers, policy spillovers across countries. Does the whole complex of global policies add up to something that’s good and appropriate, but I think the currency movements are a logical outcome of different policy stances.

EISEN: What about the UK policies right now? Have you been watching what's happening in the British bond market and the now third announced intervention from the Bank of England to calm things down?

YELLEN: I have been watching UK developments quite closely. I will be, I have met with the Chancellor Kwarteng and I expect to meet with him again. I don’t want to comment on UK policy, but I am going to try to understand what the impact of those policies and their rationale is.

EISEN: Well that is impacting our our bond market and there's a feeling that it's making some of the volatility globally a lot worse.

YELLEN: Well, you know, as I said, interest rates are rising globally due to advanced country monetary policy tightening and responses.

You know, my general view is and this is how I feel for the United States that at a time when monetary policy is tightening, fiscal policy should have a stance that complements that that central banks play the lead, but fiscal policy should be complementary. We've tried to do that in the United States.

EISEN: Yeah, not not happening there hence the credibility problems with the fiscal policy in the UK. I know you don't want to get into Fed policy and it's tough as someone who was literally in that chair before but you have to be concerned as Treasury Secretary about the Fed overdoing it, don’t you?

YELLEN: Well, you know, tightening, changing the stance of monetary policy to deal with inflation, it's extremely important and I certainly espouse the goal, and I believe strongly in Fed independence.

It's for the Fed to decide what's the right path, but it is an art and not a science exactly. And so it's always a matter of balancing risks but I have confidence in the Fed to make a good set of decisions, and we're not going to interfere with their independent judgements.

EISEN: You think in inflation is coming down rapidly here? If you look at commodities, shipping rates, listen to companies, feels like it's coming down.

YELLEN: I look at the signals and I think they're encouraging. I think we need to see it in the CPI and the PCE, and the inflation indices that we watch.

There's been some news that's positive but I think we need to see a sustained decline, but I'm looking at those signals as well, shipping rates, delivery lags, commodity prices, other things that can can be forecasters of future inflationary trends and we're seeing some easing.

You know, the job openings have come down that takes without really seeing any layoffs or distress in the job market, that takes a little bit of heat out of the job market as well which should be helpful in bringing inflation down too but we'll watch the numbers closely and monitor it carefully.

EISEN: You know, in the, in the past few weeks, there's been a lot of chatter around your own tenure as as Treasury Secretary, report that you are going to leave after the midterms, report that you said is not true. So you do plan to stay?

YELLEN: I plan to stay. I have never said that I intend to leave. I've heard those rumors, but I fully intend to stay.

EISEN: For how long?

YELLEN: I have no plan to leave.

EISEN: Some Republicans think that you should resign because you've got the inflation story wrong.

YELLEN: I think there was a series of shocks that virtually no one could have predicted, including Russia's invasion of Ukraine that have pushed up prices and a series of supply challenges that most people did not anticipate, including me.

I, you know, I, I think I was in good company in failing to see that inflation would would increase and remain as persistent as it has. The Fed clearly understands the problem it faces and we’re supportive of the actions that they're taking to bring it down. It is President Biden's top economic priority.