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Treasury Secretary Janet Yellen sees a path to bring down inflation


Years of pandemic disruptions have left the whole world dealing with high inflation. Then a war in Ukraine unfolded, one that has shaken worldwide supply of grain and oil and gas. And also, don't forget all the natural disasters that have intensified with climate change, like the hurricane barreling towards Florida at the moment. All of these factors have had substantial effects on the American economy. And one person whose purview is to help the country absorb all those impacts is Treasury Secretary Janet Yellen. Recently, she has been promoting the climate and clean energy goals of the Biden administration. She spoke with us earlier today. Welcome, Secretary Yellen.

JANET YELLEN: Thanks so much for having me.

CHANG: So today you spoke at a solar energy facility. And, you know, I'm thinking there may be a lot of people out there who may not totally understand why this administration is connecting climate change risks to financial markets and the economy. What do you say to them about what that connection is?

YELLEN: Well, over the last several years, our economy has been struck by a series of supply shocks. The pandemic - we saw supply chain problems. And then with Putin's war in Ukraine, we saw big increases in both energy prices and food prices. And many economists believe that supply shocks like this are only going to become more frequent, especially as the incidents of billion-dollar-plus weather events and fires has increased and is likely to continue to increase. So an important part of the Biden agenda is to try to make our economy not only more productive but also more resilient. Three key pieces of legislation that have passed in the past year - the infrastructure bill, the CHIPS bill and the Inflation Reduction Act - all make very important contributions. And a very important area is energy security. If we were more dependent on the wind and the sun for electric power, we would be much less vulnerable to the kind of geopolitical shocks that we're experiencing with Russia and Ukraine and, of course, other parts of the world where there are issues that can lead to skyrocketing oil prices.

CHANG: You know, it's one thing to encourage individual consumers to put up solar panels with tax incentives, say. But really big gains on the environment are made when corporations act. So how does this administration plan to induce pretty large private investment to reduce emissions?

YELLEN: So the Infrastructure Act and the Inflation Reduction Act provide very important incentives that will generate historic investments by the private sector in expanding clean energy. And I visited today a solar energy firm called Cypress Creek that is vastly increasing its investments in solar energy. And these investments are made possible by the fact that there are more generous clean energy incentives in the IRA to make big investments to deploy renewable energy.

CHANG: Well, I do take your point that the new Inflation Reduction Act does a lot to promote green energy, promotes cleaner cars, tries to address health care needs. But it doesn't do much to fix inflation in the short term, which is, you know, really the Federal Reserve's job. Are you concerned that this will set people up for disappointment?

YELLEN: Well, look. We have to address both short-term problems and longer-term problems. And the investments in this historic legislation are mainly geared toward the longer-term issues around climate change, although the Inflation Reduction Act will significantly lower the cost of drugs and health insurance. And those are short-term gains that offset some of the other cost of living increases that Americans are experiencing. And we're doing other things that are supportive of the Fed's efforts. We've had historic releases of oil from the Strategic Petroleum Reserve, and Americans have now seen gas prices fall substantially off their peak. We're trying to also address the cost of oil here and globally by imposing, with our G-7 allies, a cap on the price of Russian oil. So we're taking complementary actions but recognize the Federal Reserve has the primary role...

CHANG: Right.

YELLEN: ...To play here.

CHANG: OK. Well, you have been saying that inflation is, quote, "unacceptably high," and this administration has said that its top priority is to bring inflation down. Let me ask you this. At this moment that we're in right now, is reining in inflation more critical than the risk of recession?

YELLEN: Well, I think it is critical to bring down inflation. There is the risk that, if it doesn't come down over the next several years, it could become endemic in the United States, which could require a significant downturn to bring it down, as we saw in the early 1980s. We don't want to get into that kind of situation again. But the United States is better poised, I think, to see inflation coming down while maintaining all the gains we have achieved in the labor market over the last year and a half. Household finances are very solid. Our banking system is strong. And I believe there is a path to bring inflation down while maintaining a strong labor market. And while there are risks - it's not guaranteed - I'm very hopeful that we can achieve that kind of outcome. I think it's possible.

CHANG: U.S. Treasury Secretary Janet Yellen, thank you very much.

YELLEN: Thank you. Transcript provided by NPR, Copyright NPR.

Ailsa Chang is an award-winning journalist who hosts All Things Considered along with Ari Shapiro, Audie Cornish, and Mary Louise Kelly. She landed in public radio after practicing law for a few years.