Janet Yellen Champions Biden's Economic Triumphs At Senate, Faces Inflation Queries, Fiscal Sustainability Concerns

Treasury Secretary Janet Yellen, in a recent testimony before the Senate Committee on Banking, Housing, and Urban Affairs, praised the Biden administration’s successes in fostering a historic economic recovery, while keeping an eye on emerging risks.

“GDP growth is strong and inflation has declined significantly,” Yellen said Tuesday, Feb. 6. “We’ve also achieved a healthy labor market. From January 2021, the unemployment rate remains below 4%, continuing the longest streak in 50 years.”

High Debt Concerns

Addressing concerns over fiscal responsibility, Yellen admitted, “Probably our government is not on a fiscally responsible path right now.” She emphasized the need for deficit reduction and maintaining a sustainable fiscal path.

Despite rising interest burdens, Yellen highlighted that the current levels remain within historical norms, with the president’s budget aiming for substantial deficit reductions. However, she acknowledged the need for collaborative efforts to achieve these savings amidst concerns over increasing debt service costs, which have surged by $237 billion year-over-year.

Yellen conceded that, in an extreme scenario, there could be a diminished willingness to absorb U.S. government-issued debt. Yet, she reassured that the U.S. debt remains a premier, highly valued asset globally.

Prices Don’t Have To Go Down, If Wages Rise

Senator John Neely Kennedy (R.-La.) raised concerns about the persistence of high prices, despite the disinflation trend. Quoting Federal Reserve Chairman Jay Powell, Kennedy pointed out the distinction between disinflation, which is a reduction in the pace of rising prices, and deflation, which is an absolute fall in the price of goods and services in the economy.

Kennedy highlighted that the latter might require a recession—a scenario both Powell and Yellen aim to avoid.

Yellen acknowledged the pressures on American households and affirmed the administration’s commitment to reducing healthcare costs, energy expenses, and ensuring affordability for a middle-class lifestyle.

However, she claimed that deflation is not an objective: “We don’t have to get the prices down because wages are going up.”

Janet Yellen also championed that the median American worker is financially better off today compared to 2019, with additional disposable income.

“If you compare today with 2019, the average American can buy the same basket of goods with $1400.00 left over to save or spend,” Yellen stated.

Real Estate Sector and Banking System Stability

Yellen also addressed concerns regarding the commercial real estate (CRE) sector, especially in metropolitan areas where office building vacancy rates have surged and valuations are dropping. This trend indicates potential stress and losses within the sector.

According to the latest Financial Stability Oversight Council annual report, regional banks tend to carry
higher exposures to all CRE loans, which could translate into greater losses in the event of a drop in CRE valuations

“I hope and believe it will not end up being a systemic risk for the banking system. The exposure of the largest banks is quite low, but there may be smaller banks that are stressed by these developments,” Secretary Yellen said.

Read Now: Meta’s $50 Billion Buyback — Is It Good? Bad?: Redditors Appear Divided In Their Opinion

Image: Shutterstock