Markets Wired

Thank you for being here. This has been a very productive week already, and I am looking forward to the G7 Ministerial here in Bonn this week. First, I’d like to thank Minister Lindner for his leadership.

I have spent the week in Warsaw and Brussels before arriving here in Bonn. The backdrop against this trip is, of course, Russia’s illegal and unprovoked war against Ukraine.

My thoughts continue to be with the people of Ukraine as they fight back against Putin’s brutal invasion into their homeland. I was honored to join and hear from refugees that have been welcomed to Poland who were generous enough to share their experiences and who embody the strength of the Ukrainian people.

Treasury is committed to doing what we can to ensure that Putin’s brutal war continues to be met with fierce resistance internationally. The United States and more than 30 of our partners – representing well over half the world’s economy – have imposed unprecedented financial pressure measures on Russia and its leadership, and are firm in our resolve to hold Putin accountable and to strengthen the hand of the Ukrainian as the invasion continues.

Thanks to this unity, the sanctions imposed against the Russian Federation have already had enormous impact – Russia is experiencing recession, high inflation, acute challenges in their financial system and an inability to procure the materials and products they need to support their war or their economy.

In the next two days, I will work with my G7 counterparts to ensure we continue to stand together to uphold our shared principles and extend our cooperation to boosting our support for Ukraine. I expect that the Senate will respond to the President’s request and pass a package of $40 billion in security, economic, and humanitarian aid soon. In Bonn, I will ask my G7 counterparts to join us in increasing their financial support to Ukraine. Ukraine has done remarkable work to repel Russia’s invasion but they need our help and they need it now.

Zooming out though, Russia’s war against Ukraine has exacerbated the issue of food security for people around the word, particularly in emerging and developing countries. I am deeply concerned by how this is unfolding. There is a very real risk that soaring global market prices of food and fertilizer will result in more people going hungry, further exacerbate price pressures, and harm government fiscal and external positions. At my direction, International Financial Institutions, including the IMF and World Bank, have developed an action plan to address the threat. These IFIs have started surging billions in resources — for example, the World Bank is mobilizing over $1.9 billion – details of which were announced earlier today. This has been important progress but we need to double down on our efforts to ensure people around the world can feed their families.

Finally, it is no secret that I am keenly focused on moving forward on the global agreement on international tax reform, including a global minimum tax that will level the playing field and raise crucial revenues to benefit people around the world. Last fall, 137 countries – representing nearly 95% of the world’s GDP – agreed last fall on a deal that will stabilize our tax systems, provide resources to invest in security and respond to crises like Covid-19, and ensure corporations fairly share the burden of financing government. I know my counterparts in the G7 share my sense of urgency and I look forward to discussing the next steps with them.

And with that, I am happy to take your questions

 

Q & A

 

Q: Given all the challenges that you just mentioned, what do you see right now as being the biggest risk to the global economy? What can you and your counterparts here this week do to help avert a global recession?

 

SEC. YELLEN: Well, certainly the economic outlook globally is challenging, and uncertain, and higher food and energy prices are having stagflation airy effects, namely, depressing output and spending and raising inflation all around the world.

The United States, in many ways is best positioned, I think, to meet this challenge, given the strength of our labor market and the economy. We understood when Russia invaded Ukraine, and we decided to respond, that there would be spillover effects, and that we are prepared to pay, but we’re doing everything we can to make sure that the sanctions have the minimum negative impact on ourselves, on Europe, on other countries, emerging markets, developing countries, and the maximum impact on Russia.

And many of the discussions we have had, and will continue to have, as we continue to put sanctions in place will be about how best to design them to shield the global economy from the adverse effects while imposing maximum harm on Russia and Putin.

And, of course, specifically, with respect to oil prices, the President announced jointly with other partners, in our case large releases of a million barrels a day of oil from the Strategic Petroleum Reserve that I think is helping to stop oil prices from rising even further and giving a window in which supply can ramp up.

 

Q: Thank you. Good afternoon, Secretary Yellen, Chris Condon from Bloomberg News. In recent months, Secretary Yellen, the US dollar has appreciated significantly against many other currencies, and part of that is, of course, a natural result of the expectation for higher interest rates in the US. But the extent of that strengthening has surprised and even alarmed some market participants and some governments. Could you assess if that strengthening were to continue how worried would you be on two levels first about the US domestic economy, given its potential impact on export manufacturers, and also on the many countries around the world that carry significant levels of dollar denominated debt? Would you be worried about it provoking a debt crisis? And finally, would the administration advise that anything could or should be done about this scenario? Thank you.

 

SEC. YELLEN: So let me say from the standpoint of the administration, we’re committed to a market determined exchange rate, although we have made clear that actions that countries specifically take to push down the value of their currencies in order to distort trade in their favor, that we will respond to that. But we have a market determined exchange rate and think that’s the best regime. I think you pointed to one factor, tighter monetary policy in the United States rising interest rates, that is causing capital to flow toward the United States and into dollars.

Also, at a time of kind of risk off and uncertainty. It’s natural. The dollar is a global safe haven. And we tend to experience inflows naturally that push up the dollar in highly uncertain economic times. So, I think it’s understandable that the dollar has risen. But you pointed to impacts on other countries and that is a concern.

There are many countries with dollar denominated debt and a rising dollar makes it more difficult for countries to bear that debt. We know that often emerging markets worry about how they will fare in an environment of higher interest rates and tightening monetary policy.

I saw that one myself when I was Fed Chair and we began to tighten, and I think continuing to keep our neighbors well informed that the Fed, of course runs an independent monetary policy, but attempting to be clear about what our policy is, I think is an important strategy for helping our neighbors adjust.

 

Q: You’ve spoken before about the possibility of Russian Central Bank reserves being used to fund to defend Ukraine and to rebuild the country. You’ve also spoken about how there would be a need between counterparts to do so. Can you elaborate a bit on some of the conversations that have been had regarding that possible effort with the Russian Central Bank? And also, could you talk a little bit about what sanctions options are left available, and what are some of the most severe that could be imposed and when they would potentially be imposed?

 

SEC. YELLEN: So, with respect to the assets of the Russian Central Bank, they’re obviously substantial. I think the United States and our partners, it’s estimated have blocked around $300 billion of those assets. And I think it’s very natural that given the enormous destruction in Ukraine, and huge rebuilding costs that they will face that we will look to Russia to help pay at least a portion of the price that will be involved.

That said, while we’re beginning to look at this, it would not be legal now, in the United States, for the government to seize those statutes. It’s not something that is legally permissible in the United States. Other countries have, you know, legal issues around it as well and there really are a number of issues.

Conversations are really just beginning among countries about how to finance longer term reconstruction and whether or not those assets should play a role, and if so, how. So, I don’t really have a lot further news for you on that.

 

Q: I have a question on inflation for you, again, because inflation, also in the United States, but here in Europe is starting to potentially get out of control. So how concerned are you about that? And is that one reason why you are floating the idea of having tariffs on oil exports from Russia and not an outright ban from the European Union? Thank you.

 

SEC. YELLEN: So, inflation clearly is a concern in many parts of the world, in the United States, in the UK, and in in the rest of Europe as well and clearly, higher energy prices, higher food prices are, and other commodity prices, really due to Putin’s choice to launch a war against Ukraine are really responsible for much of that. And we understood that there would be consequences that we would not be able to shield ourselves entirely from economic consequences, but the principles that all of us have adopted.

As we consider what sanctions packages to adopt, are, as I said, we want to have the maximum impact, we can on Russia the maximum negative impact to degrade their ability to wage war now and project power in the years ahead, and to minimize the negative spillovers to ourselves. As we contemplate energy sanctions and other sanctions, this is always the core of the conversations that we’ve had.

So, the European Union has made clear that they intend to end oil imports by the end of this year. That gives a significant amount of time to make sure that it can be done in an orderly way, and so that there won’t be price spikes associated with it.

In the meantime, discussions are ongoing. All of us share the objective of diminishing the revenues that Russia will have to buy goods and services that will help their economy and enable them to wage war. We’re doing a lot of things that are effective in diminishing their access to the goods and services that they need.

Just very recently, it was announced that the two major tank producing firms who have had to shut down operations because of inability to get necessary parts and materials but shutting off oil and gas revenues are a very substantial source of revenues for Russia. We would like to do what we could to diminish those revenues going to Russia. And so a number of ideas have been discussed.

You’ve probably heard tariffs, price caps are three possibilities that are on the table. We continue to look at those things, no decisions have been made. You know, this is important for Europe to decide what they think is best. But we continue to have those discussions there are a lot of options but those are the objectives.

 

Q: We’ve seen continued increases in gas prices, can you talk a little bit about when Americans can see relief from the administration’s actions, and if you anticipate the problem will get worse before it gets better this summer.

 

SEC. YELLEN: So, you know, I’m not going to try to forecast the exact path of gas prices for you. But the global price of oil is stabilized, you know around a little bit over $100. And, you know, of course, that means higher gas prices than Americans want. We’ve seen in some time, I think is supply begins to ramp up, we expect to see a significant supply response in the United States and other parts of the world.

In the meantime, the releases from the Strategic Petroleum Reserve, I think are serving to basically stabilize prices.  We’re doing what we can to avoid further increases in energy prices. But, you know, we also want to make sure that Europe especially wean itself from dependence on reliance on Russia for oil and gas, and these pressures are not likely to abate in the very near future.

 

Q: Thanks, Secretary. Yesterday you called for and allies to sort of confront China together. How concerned are you about the lockdowns that are going on in China right now? You know, they are the producer for the world. How big of a threat is this to the global economy, what we discuss about it? And, also, if you could talk about your views on tariffs, the U.S. tariffs on Chinese goods under the Section 301? What are you telling your counterparts within the administration that we should do about these? Thank you.

 

SEC. YELLEN: So, with respect to China, certainly the lockdowns look like they are impeding the production and flow of goods and services, given how extensive they are, and compounding supply chain difficulties that we’ve had that have boosted prices, although some of those pressures seem to be mitigating the developments in China exacerbate those supply chain pressures. And so that’s a source of concern.

China also seems to be experiencing a slowdown in growth. And as one of the largest economies in the in the globe, China’s economic performance really has spillover impacts on growth all around the world. And so that that is a factor that affects the global outlook and we’re monitoring carefully what happens in, what happens in China and what their policy responses are.

With respect to tariffs, discussions about tariffs are underway in the administration. I’ve said previously that I think that some of the tariffs that were imposed by President Trump in retaliation for China’s unfair trade practices, some of them, to me seem as though they impose more harm on consumers and businesses and aren’t very strategic in the sense of addressing real issues we have with China, whether it concerns supply chain vulnerabilities, national security issues, or other unfair trade practices.

And so, I see a case not only because of inflation, but because there would be benefits to consumers and firms from some of the tariffs, that some relief could come from cutting some of them. But we’re, we’re having these discussions. There are a variety of impacts. There are a variety of opinions. And we really haven’t sorted it out yet come to agreement on where to be where to be on tariffs. And, you know, I respect the opinions I heard, I hear expressed around some policy tables, there are a variety of valid concerns.

 

Q: Hi, Secretary Yellen, I wanted to ask about the exemption for the U.S. receiving payments on Russian sovereign debt that’s due to expire next week, I’m curious how you’re thinking about the decision of whether that exemption should be renewed and what you see as the possible economic impacts of pushing Russia into default and what, what spill overs there could be from that move?

 

SEC. YELLEN: So, you know, we, when we first imposed sanctions on Russia, we created an exemption that would allow a period of time for an orderly transition to take place, and for investors to be able to sell securities. The expectation was that it was time limited. So, I think it’s reasonably likely that the license will be allowed to expire.  There has not been a final decision on that. But I think it’s unlikely that it would, you know, it would continue.

You know, in terms of Russia, Russia is not able right now to borrow in global financial markets, it has no access to capital markets. If Russia is unable to find a legal way to make these payments, and they technically default on their debt. I don’t think that really represents a significant change in Russia’s situation. They’re already cut off from global capital markets, and that would continue.

 

Q:  Madam Secretary, are you concerned that the United States, Europe, and China might end up in some kind of synchronized recession, like Ken Rogoff and other economists have predicted?

 

SEC. YELLEN: I mean, I really, I really hope that doesn’t happen. You know, from the U.S. point of view, what I would say that we have a great deal of economic momentum in the United States. We probably, we recovered faster from the pandemic economically than almost any other country. And, you know, we have a very low, almost the lowest, unemployment we’ve had in the post war period, huge job creation, a very tight labor market, and households that are in overall excellent financial shape, with substantial buffer stocks of resources that they can use to continue to spend.

We have inflation, obviously, the Fed is tightening monetary policy to address it. We are in a global environment where there are significant risks and pressures, but I really don’t expect the United States to fall into a recession. I think Europe is perhaps a bit more, a bit more vulnerable and of course more exposed on the energy front than the United States is. I’m not going to make a forecast here. But you know, this is an environment that is filled with risks, both with respect to inflation, and also potential slowdowns.

 

Thank you.

 

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