Inflation has been much better behaved in the second half of the year. Headline inflation is down to 3. 1 . For prices rose last month of 0. 3 from october, a 3. 5 annualized rate. Is inflation to vanquish . It meaningfully coming down, and i see no reason on the path we are current me on why inflation should not gradually declined to levels that are consistent with the feds mandate and target, so supply chain issues that resulted from the pandemic and mismatches in disruption and labor markets both seem to be healing. As that happens, inflation moves down. The labor market, well it remains strong, we have had 22 months now with the below 4 inflation, which is quite a phenomenon. We have not seen that in 50 years. Still the labor market is cooling some as job openings come down, and the intensity of hiring has diminished some, but of course, we have not seen layoffs and we have excellent job creation, Labor Force Participation increasing, and at this point with the down this much and wage increases continuing at a healthy pace while wages are rising. Real average Hourly Earnings are up 1. 4 over the last year. There is a view among economic commentary that says the last mile of getting inflation down will be the hardest. What do you think . Could inflation be more persistent if wage growth runs above 4 . Sec. Yellen as price pressures decline, real wages are rising, but productivity has been healthy, and we are not seeing pressure on unit labor costs. I personally do not see any good reason to think that the last mile is going to be especially difficult. I think we have an economy operating at a roughly full employment, and it will continue to do so. You know, i think people predicted that unemployment was going to have to rise considerably in order to get inflation down, but Inflation Expectations are an important element in the inflation process, and Inflation Expectations well, recent data suggests they have come down, but i think they have been well under control, and that is important because he means there is no underlying inflation momentum that we would need a softer labor market to managed to bring down. Over the last couple of years, the two big worries you hear about from economist are we will have a wage price spiral, or Inflation Expectations will become unanchored. Do you think policymakers have cut off those tails . Are those no longer things we need to worry about . Sec. Yellen policymakers are paid to worry. That is not on my worry list. I do not see any evidence that inflation has become engraved ingrained or that we have a wage price spiral. Neither of those things seem to be problems we are dealing with, and the fed has done a good job of managing policy. As i said, importantly the labor market is showing signs of less stress, so well wage growth is healthy, it has come down some and real wages are rising. On expectations being anchored, markets certainly seem to agree. Bond markets think Interest Rates will be lower. It is implausible to have Interest Rates coming down when inflation is still above 2 . Sec. Yellen the decision of what the right Monetary Policy is is up to the fed. I thought you would say that. Sec. Yellen i think they need to carefully watch the economy and make a judgment about whats appropriate. If inflation comes down, real Interest Rates tend to rise, which causes the uptake of Monetary Policy. Thats one factor you could weigh in the decision that the fed makes about the Interest Rates. I want to take a step back and take stock of what we learned about inflation over the past two years. People will watch their p. A. D. s about this years from now. What caused inflation to go up so much, and why has it fallen without any serious weakness in the economy so far . Sec. Yellen i do think we dont know the answer to this at this point. Its appropriate that there be some phd thesis and a lot of Research Papers on this, and theres going to be time ahead. But just looking at what has happened, i think there were very significant supply disturbances that were caused by the pandemic shortages, big shifts in the structure of demand that went to sectors like automobiles that were faced with in normas excess demand, shortages of chips shipping, huge increasing shipping costs from asia. So, the supply disruptions have gradually come down and, i cant say exactly how much that has contributed to lower inflation, i think that has been a factor. You also have enormous disruption in the labor market with a very significant number of people laid off who are losing their jobs who need to find new work. And, i think that led to disruptions in the labor market. They are also gradually healing in a way the natural rate of unemployment is coming down as people settle into new jobs. Thats a very disruptive process we saw, not only desperation on the part of firms as the up as the economy picked up and they were desperately trying to add to their workforce, but mismatch of workers and forms and firms that made people quit their jobs and look for other work as they settled into a good match. So it was unusually high. Job openings were high, wage increases were very high in the labor market. It had been so disrupted, but now if you look at it, job openings are down substantially. I dont mean by that to levels that are worrisome low, but normal low good labor market prepandemic level. The quick way, which is i think the driver of wage increases, workers could quit their jobs when they think they can get a better price somewhere else. Sec. Yellen absolutely, you see quick rates come down to normal levels. The labor market is normalizing and Labor Force Participation has moved up among adults. We have seen it move up to the highest levels in decades. And that is helping to ease inflationary pressures as well. You said you see a soft landing is a most likely outcome for the economy, do i have that right . Sec. Yellen yes, in the sense that, to me, a soft landing is the economy continues to grow, the labor market remains strong and inflation comes down. I believe thats the path we are on. When i look back on history, soft landings were rare. In 2000 and 2007 the economy was slowing into a soft landing. Most recessions look like a soft landing for a little while. It gives you confidence this might be like an episode in the mid1990s and in the last two downturns. The covert shock where it looked like we were soft landing and then we had a hard landing . Sec. Yellen i agree it is an unusual thing to have happen. It certainly takes skill on the part of the fed to calibrate Monetary Policy properly. But, if you just look at the data, it looks as though thats the path we are on. And i will say this, the last several years, what ive been saying when they asked about the economy is that, i believe its possible to have a soft landing. Theres nothing inherent about those sharks that have hit the economy that make it necessary to have a time of high unemployment to get inflation down. Many economists were saying, theres no way for inflation to get back to normal without it in tailing a time of high unemployment or recession. One year ago, i think many economists were saying a recession was inevitable. But actually, i have never felt there was a solid intellectual basis for making such a prediction because as long as inflation the times in the United States needed a downturn to get inflation down, those were times like after the oil shocks of the 1970s when Inflation Expectations clearly had moved much higher and inflation then becomes self perpetuating. You have a wage private stash wage price spiral where the only way to bring inflation down is getting Inflation Expectations down, and that involves a time of high unemployment and pushes inflation down and shows people you were wrong, inflation is actually lower than you thought. Thats a painful process. We didnt need that. And because Inflation Expectations had never meaningfully ratcheted up on a longterm basis, we just had set help the economy normalize and get the labor market back to a full employment state to bring inflation down. Of course there were shocks along the way, russias invasion of ukraine led to soaring food and Energy Prices that of course boosted inflation and had the potential to dislodge Inflation Expectations. So there have been many risks along the way. But, we have managed to avoid the adverse real consequences of those risks. And, i think we are in a soft landing path, which is a which is highly desirable. Theres a disconnect right now, you see some of the surveys, people say they are unhappy with the economy, they feel worse off than three years ago. You look at the headline numbers and say whats not to like about low unemployment and inflation coming down. Why do you think there is a disconnect and are you concerned about the fact the administrations message about bidenomics isnt landing . Sec. Yellen i think we have been through a lot, the pandemic caused a normas amount of disruption in peoples lives. And we are still in the aftermath of what has been a serious shock and we have had serious global shocks. And although prices are rising at a much slower pace than they were, inflation is substantially off with the level of prices of some things that people buy, and are important to them are higher. A good example would be rent. Rent has gone up considerably. And, the cost of, if you are in the market to buy a new home at this point, with Mortgage Rates in house prices having increased. I think a lot of young people who are in the market want to start families, are renting and want to buy a house, and we see costs continue to rise. The prices of new rentals have stabilized and that means that over time, shelter inflation will come down, bringing headline inflation down as well. But, people are seeing increases in rental costs, and thats an important aspect of their cost of living. But, the Biden Administration is doing all that it can in taking steps that are very meaningful to lower costs in areas where they can. An example would be capping insulin prices for seniors at 35. We now have Prescription Drug prices coming down up the whole energy, the Inflation Reduction Act, the energy initiatives, and the bipartisan infrastructure law will bring Energy Prices down over time. So the Biden Administration certainly understands that high prices, even if they are no longer rising, are definitely a concern to americans and we are trying to to take the steps we can to address these prices. You mention Mortgage Rates. Its been an interesting time. We saw a selloff on the note up to 5 and they are back to 4. 25 . How much stability is on bond markets, do you attribute to the treasurys decision to issue fewer longterm decisions in the market expected, and was that a deviation from the treasurys protocol of regular issuance . Sec. Yellen regular and predict people influences the core strategy the treasury follows. Experience shows that regular and predictable issuance is central to keeping borrowing costs contained over time. We routinely confer with Market Participants to understand changes in the market, shifts in demand through different maturities of securities and our borrowing needs shift. And, really, the adjustment that was made, i guess it was in november, was really quite marginal. We had been increasing our issuance in order to finance deficits, and we meet we made an adjustment to increase issuance of a bit less since the long end, given the strains that we saw there. But really regular and predictable. We do not as a routine manner, respond to movements in market rates. Of rates came in below forecast and you are forced to issue more, would you keep it lighter on the long and given concerns about demand for duration . Sec. Yellen im not sure, no decision about that has been made. We do get the advice of Market Participants and are trying to understand whats best. Is the longterm fiscal picture for the u. S. Sustainable . Particularly the average Interest Rate on the u. S. Debt is higher in the coming years and we dont go back to the very low Interest Rates that prevailed before the pandemic . Sec. Yellen one way i judge sustainability of our fiscal path is buying, looking at the net real Interest Rate on the debt. Which is our financial cost in inflation adjusted terms. That has been quite moderate and well within historical norms. Projected as, over time, to rise somewhat, but still in our last budget toward things that are not worrisome. But of fire Interest Rates if Interest Rates are substantially higher on the longterm basis, then we previously projected, that results in some extra stress on the fiscal outlook. The president has recognize that its necessary to take steps to reduce the deficit over time to have a more fiscally sustainable policy. And he has proposed, in his last budget, 2. 5 trillion of deficit reduction. A lot of this comes about through tax rates that are higher on corporations and wealthy individuals are Tax Collections as consequences of job cuts and tax act in 2017 have fallen to historically low levels. Taxes at the share of gdp are now at 16. 5 . So, thats about a point 1. 5 of gdp below projections before the act was passed. And, the president has proposed a large number of ways to make up that gap. In addition, we have in the United States and utterly enormous tax cap. Im referring to the differences between taxes that are actually collected in that are due under our existing tax code. That range is the estimate over a decade is 7 trillion. Congress allocated 80 billion in the Inflation Reduction Act to restore the capacity of the Internal Revenue service to higher the kinds of personnel, tax lawyers, accountants who are able to enforce the tax code. That is going to have a substantial payoff over time. The republicans recently proposed and we did agree to take 20 billion of that back. Thats no economy at all, thats a totally false economy because taking money away from the Internal Revenue service, and it has been shown in the estimates, it doesnt reduce the deficit, it raises the deficit because this money goes to close that tax cap and makes a considerable difference. So we have opportunities on the revenue side. I think it needs to be part of any plan and of course with an aging society, we do have greater spending. We have differences on medicare and Social Security that may need to be addressed. Before we close, you are in the apac meeting in San Francisco with chinese leaders xi jingping, what would be the goal of u. S. Engagement with china, given so much of the frustration and disappointment over the last 20 years . Is the u. S. Doing enough to derisk from china and is there a danger of doing too much derisking . Sec. Yellen i see a threepart agenda with respect to china. The first is that we want to have a relationship that involves healthy competition, trade, investment that is broadly beneficial both to the United States and to china, is good for businesses, china is a huge market and is good for american workers, creates jobs. We do not want to decouple the Biden Administration does not seek to decouple from china, but we do seek to derisk. That means we dont want to be overly content when it comes to key supply chains on china, instead, i promoted an approach called friends shoring, which involves diversifying our supply chains. We are working with india, vietnam, mexico, indonesia, with other countries to continue to get the benefits of international trade, but to be less reliant on china. We also need a level Playing Field. The president , in his meeting with president xi and i met a few days before that with my chinese counterpart. China has practices the result in unfair trade subsidies , intellectual property practices that create an unlevel Playing Field that we intend to address, but no decoupling and continued engagement. Thats plank one, plank two, we will protect our National Security and speak out about human rights. Theres no compromising about that. We will try to make our approach as narrow, as targeted as we possibly can, and lets say the recent rules that we put forward , with respect to investment, where we do see some dangers of u. S. Firms investing in china, are very narrowly tart very narrowly targeted, artificial intelligence, quantum computing and with real National Security implications. The third plank of the china policy is, we need to cooperate to address global challenges. We have a responsibility to the world to do that, to where it is that is very important to Climate Change in debt, that there are a lot of countries around the world that are suffering, especially with high Interest Rates from unsustainable debt burdens. They need to restructure their debt, and we need to cooperate to do it in china is one of the biggest lenders. This is in a u. S. China issue, its a multilateral issue, and we are in regular conversations with our chinese counterparts to try to make progress in these areas, and i feel encouraged by the signs that things are getting better. We are nearly out of time, maybe a quick lightning round. You are one of two people who have been share of the fed and treasury secretary, what are the biggest differences between those two jobs . Sec. Yellen the feds job is very focused, mainly on, well, supervision is an important piece of the feds job. But with the respect to the economy, its focusing on constructing a Monetary Policy that best allows attainment of price stability, maximum employment, mandate. The treasuries jobs are very, very broad. I have never been in a position where the responsibilities are so diverse. We have a thousand people who work at treasury who deal with sanctions and threats from terrorists, illicit finance. We have tax policy, International Economic relations with a variety of countries representing the United States and the Multilateral Development banks in the imf and on and on. The range of responsibilities to treasury is really a norm us. Which job is better . Sec. Yellen they are both great. Im a lucky person to have had either of them. Im very grateful for the opportunity. On that note, we are grateful to have had you join us this morning. Thank you very [applause] announcer campaign 2024 coverage continues with residential primaries and caucuses. Watch live on cspan as a votes are cast along with candidate speeches and results getting with the Iowa Caucuses january 15 and the New Hampshire primary january 23. Campaign 2024 on cspan, your unfiltered view of politics. Now we take you like to hear from former u. S. Solicitors general paul clement and Donald Verrilli on how political issues are argued and decided at the u. S. Supreme court as a part of the American Association of moscows annual meeting live on cspan. I think this means not just Todays Supreme Court 2023, but in recent years when my two colleagues here have been very active participants at the highest level of making constitutional law at the Supreme Court. They do not need any introduction. Donald verrilli, both were members of the Supreme Court are. Donald