Janet Yellen, Secretary of the Treasury of the United States, 1/25/24

Well, good afternoon and Sean. Thank you for that lovely introduction and thanks to everyone for a very warm welcome. I'd like to acknowledge Chicago Fed President Austin Goolsbee, Clerk Ann of Valencia, Sheriff Tom Dart, Illinois State Controller Susanna Mendoza, Secretary of State Alexi Giannoulias, and State Treasurer Michael Frerichs. I'm honored to be here at the Economic Club of Chicago to talk about the middle class in America. From when the pandemic hit to the recovery to what's ahead. It's a fitting story to tell here in Chicago. Like many American cities, Chicago was built by a middle class that drove industrialization and innovation. But Chicago and its middle class residents have also faced challenges for decades. The story of the middle class is not separate from the state of the economy. It is at the heart of it. And by middle class, I don't mean a narrow or fixed group. I mean workers across industries and occupations, from firefighters to nurses to factory workers. Americans other than those at the very top. President Biden and I believe that GDP growth is not meaningful if it is not shared, if it doesn't impact the lives of these Americans. And we also believe that a stronger middle class and a thriving economy everywhere in the United States is key to building a more robust and resilient economy overall. America's middle class has been at the heart of America's success. This leads us to pursue an agenda that is focused on the middle class. We started with an economic recovery that is remarkable for both its speed and fairness. The recovery is so strong and so widely shared because Bidenomics is not just about a post-pandemic rebound in demand. We've also focused on unsnarling supply chains and bringing more Americans into the labor force which increases supply. We're now doubling down on that strategy with massive investments to position middle-class families to benefit from and to drive our country's growth. I call this approach modern supply side economics. Overall, the Biden administration has put in place the most extensive set of policies and investments to benefit the middle class and grow the economy that our country has seen in my lifetime. Our economic plan is improving lives and laying the foundation for a new future for middle class families and communities across the country. And this is what I will discuss today. Let me start with some personal experience. I grew up in Bay Ridge, Brooklyn in the 1950s and 1960s. It was a middle-class neighborhood at a good time for the middle class in America. My father was a doctor and he would tell me about the workers who came to him for treatment. I learned about how much their jobs mattered to them and also about the consequences of losing them. From the 1970s on, the American economy made great strides from huge increases in high school graduation rates to dramatic improvements in workplace safety. But the challenges I heard about when I was a kid became trends and my own special concerns as an adult and as a practicing economist. Real median wages stagnated over decades. They grew only 8% between 1979 and 2019. At the age of 30, 90% of my generation were earning more than their parents at the same age. In contrast, only half of children born in the mid 1980s earned more. Incomes became more volatile, especially for people without college degrees. It became harder to buy a home, harder to rent one, harder to pay for health care, harder to pay for education. In 2011, parents worked two to five additional hours per week compared to the parents of 1965. And to buy what they needed, middle-class Americans borrowed, adding to significant mortgage debt and student debt. This was the middle class reality when middle-class Americans suddenly were hit by the COVID-19 pandemic. The unemployment rate reached almost 15% in April 2020. The bottom quartile of wage earners accounted for 80% of job losses. After President Biden took office, the administration acted decisively with the needs of middle-class Americans top of mind. Our goal was to get people back on their feet as quickly as possible. We knew we should not go too small, so we chose a path of historic support for American workers. Through the American Rescue Plan, middle-class families received direct financial support for their day-to-day needs. That included tax credits to help their kids and emergency rental assistance and homeowner assistance for housing. Business owners got resources to stay open and to keep people employed. The expansion of the child tax credit led to the largest drop in child poverty in American history. We avoided a massive wave of evictions and foreclosures and the impacts were widely felt. Women of color especially benefited from the expansion of the child tax credit as 48% of single parent households are headed by black or Hispanic mothers and nearly half of homeowner assistance went to low-income homeowners. We seldom think about what the alternative might have been. But it's clear that without the approach we took, the scale of support and the distribution of spending, middle class families would have had a far greater struggle. As we recovered, the administration maintained its focus on protecting the middle class while also addressing other crises. For example, even as our recovery exceeded expectations, global inflation emerged as a challenge we've worked to address. In response to Russia's invasion of Ukraine and the resulting impacts on global energy markets and the American middle class, we released 180 million barrels from the Strategic Petroleum Reserve. And with an international coalition of partners, we put in place a novel price cap on Russian oil. These activities have limited Russia's ability to fund its war, while they also kept global energy markets well supplied and energy prices down for American families. Though we're focused on making historic investments in transitioning towards clean energy in the medium and long term, record domestic oil and natural gas production addressed our immediate needs. And energy prices have declined with gas now down around $1.90 per gallon from its high in June of 2022. Disruptions in supply chains beyond energy had meant we couldn't get the goods we needed or their prices were too high. The administration helped ease the supply chain bottlenecks that were contributing to inflation. And with the help of our policies, supply chains healed and Americans rejoined the labor force. Though some forecasters thought a recession last year was inevitable, President Biden and I did not. Instead of contracting, the economy has continued to grow, driven by American workers and President Biden's economic strategy. It now produces far more goods and services than it did before the pandemic. The data released just this morning shows strong economic growth in 2023, 3.1% over the course of the year. At the same time, inflation has come down significantly. Consumer sentiment has increased by 29% since November, the biggest two-month increase since 1991, and it's now at its highest level since 2021. And the labor market is healthy. The prime age labor force participation rate is up over two percentage points from January of 2021 and was above its pre-pandemic peak for all of 2023. The unemployment rate is near historic lows. It has been below 4% for 23 months now, which is a stretch that has not been seen during the last 50 years. Like our response to the pandemic, our recovery matters. It matters for the middle class. Household median wealth increased by 37% between 2019 and 2022. And this is the largest three-year increase on record. Real wages have risen from their pre-pandemic levels, especially quickly for middle income households. And because wages have risen more than prices, middle class Americans now have more purchasing power. New Treasury analysis shows that a worker earning the median wage today can buy the same goods and services as in 2019 with nearly $1,400 left over to save or spend. And families are now putting their extra income and their accumulated pandemic era savings back into the economy. Put simply, it's been the fairest recovery on record. We see this in gains not only for the middle class Americans, but also across demographic groups, such as the rapid decline in unemployment rates for black and Hispanic Americans. There are gains across the country too. Before the pandemic, the unemployment rate was nearly 20% higher in rural than in metropolitan areas. And that large gap has been eliminated. We don't need to invent a counterfactual. We can see it outside the United States. The US has seen a particularly strong GDP recovery and inflation has cooled sooner and more quickly than in other large advanced economies. And the increase in real wages is unique to our country's recovery. In other economies, real wages have declined since 2019. Our outcomes are also in sharp contrast to the recoveries I've seen here in the United States during my own lifetime. After the Great Recession, it took more than 12 years for the prime age labor force participation rate to return to its pre-downturn level. It took six years for unemployment to recover. For Americans in rural areas, it never did. And during previous economic downturns, black and Hispanic Americans have historically faced higher unemployment rate increases than other groups. The recovery we've had, instead of one that was weaker or less fair, meant that we avoided financial pain for most middle-class American families. President Biden and I know that our work is far from done. Though inflation has declined, prices of key goods that mattered to middle class Americans remain too high. So, we are taking some additional action. We've kept insulin costs for Americans on Medicare at $35 per month and we've reduced the prices of prescription drugs for seniors. We're also working to bring energy related costs down more and tax credits are available to eligible households through the Inflation Reduction Act. The president and I understand that many Americans have long felt a deeper pessimism about the economy going back far before the pandemic. Due to the longer term trends that I described, life is still harder than it should be for the middle class in this country. To change this, our modern supply side strategy is designed to build off of our historic recovery and continue charting a new course. We're focused on boosting our economic capacity in order to deliver robust and shared economic growth. Our aim is to make middle class lives better for the short haul and for the long haul. We started with infrastructure. Our country's infrastructure has been deteriorating for decades. In the Trump administration, the idea of doing anything to fix it was a punchline. But this administration has delivered. The Bipartisan Infrastructure Law is a $1.2 trillion investment in our nation's infrastructure. It's bringing new opportunities within reach for middle class families. It's creating new construction jobs that do not require a college degree. It's providing access to clean water and to better internet. It's helping goods get to consumers faster and at lower cost. And these changes are happening everywhere in America, not just on the coasts or in wealthier communities. Treasury analysis shows that funding from the Bipartisan Infrastructure Law is especially going to states with the lowest rated public infrastructure and lower median household incomes. Funding is also being widely distributed. 10 states are receiving transit funding that per capita is more than 10 times their pre-pandemic annual transit investment. An additional 10 states are receiving five times as much. 18 other states twice as much. Through infrastructure investment, we're helping build a new future for people and places that have historically been left behind. Infrastructure is just the beginning. The CHIPS and Science Act and the Inflation Reduction Act are reinvigorating American manufacturing, including through incentivizing private sector investments. Companies have announced over $600 billion in manufacturing and clean energy investments since the start of the administration. And these investments will fuel our economic growth and increase our economic security. But I want to emphasize today how they'll change middle class lives. The reinvigoration of manufacturing means new jobs for middle-class Americans, especially in places where potential exists but opportunity has failed. The IRA provides incentives to locate projects in low-income communities and in energy communities where the local economy has historically been dependent on fossil fuels. These incentives are working. Investments are growing faster in energy communities and in greater amounts. Since the IRA was passed, 70% of IRA related investments have been in counties where the employment rate is below the national average and 86% have been in counties with college graduation rates below average. And we're also working to make sure these jobs are good ones. The IRA's prevailing wage and apprenticeship requirements help ensure fair wages and pathways into new industries. The president and I are also strong supporters of unions. Union members typically have higher wages by around 10 to 15%. They have greater access to critical fringe benefits such as retirement benefits, medical benefits, and life insurance. And union members also benefit from more scheduling predictability and better workplace safety. My own academic work has found that these non-monetary factors are a key driver of job satisfaction. And we know it's not just good jobs that matter to people. What follows them also matters. So we're working to support Americans in planning for retirement. The American Rescue Plan provided support to multi-employer pensions, protecting millions of pensions, including restoring benefits for thousands of workers and retirees who had their benefits cut. In October, we proposed a new rule that cracks down on additional barriers to retirement security, such as junk fees. We're also putting tax policy to work for middle-class Americans and small businesses. Past measures like the Trump administration's tax cuts and jobs act increased the deficit by $2 trillion while doing little to spur investment. It prioritized tax cuts for corporations, disproportionately benefited top earners, and did not fix the broken international tax system that encourages companies to shift jobs and profits overseas. In contrast, President Biden made an ironclad commitment to not raise taxes on those making less than $400,000 a year. Thanks to the IRA, we have enacted numerous tax benefits that support the middle class. And our massive effort to modernize the Internal Revenue Service is making it easier for taxpayers to file taxes and receive the benefits for which they're eligible. We're paying for this and for our long-term investments by asking the wealthiest to pay their fair share. The IRS now has additional resources to go after wealthy tax cheats. A new corporate alternative minimum tax makes sure that the biggest, most profitable corporations cannot avoid paying taxes. And a surcharge on stock buybacks is encouraging companies to invest in their growth and productivity instead of prioritizing wealthy investors. Now, none of these policies are aiming to recreate an earlier era. This country and the world have changed, and we cannot go back. What we need is a new future rooted in upgraded infrastructure and a modern tax system fueled by 21st century industries. And with the middle class at its center, the administration is building the foundations of that future. Our economic agenda is far from finished. There's much more the president and I would like to do to support the middle class. When the expanded child tax credit expired, millions of children were pushed back into poverty. It's still too hard to be a working parent. We need to get American families access to affordable child care and other support for their children. As these children get older, they should be able to get a good education, including through free community college and receive training that prepares them for good jobs. As they work, they should be able to afford quality housing near economic opportunities. And as they get older, they should be able to retire with dignity. And we need to do more here, too. The obstacles the middle class has faced for decades will not disappear overnight. But this administration is fighting the right fight for economic policy that makes a meaningful difference in people's lives. That's what motivated me to become an economist and has been the central mission throughout my career. And it shaped this administration's actions as we've responded to the pandemic, as we've driven a strong and fair recovery, and as we're putting in place the building blocks for continued growth. If we keep at it, America will continue its progress in overcoming the challenges facing the middle class. The middle class has always driven the success of our country and it will continue to lead our future. Thank you.

Well, so let me first mention that we have seen some turnaround in sentiment in recent months. The University of Michigan consumer sentiment index has moved up quite a lot. Inflation is now near-term at close to the lowest levels we've seen in that survey. So I think Americans do believe inflation's under control. And a recent, I think it was last week, Axios survey showed that when people are asked about how they feel about their own finances, over 60% said they consider them good. And when they're asked about how they think the economy this year will compare with last year, they expect over 60% believe it's going to improve. So I think we have, of course I don't disagree with you that we have seen over the last year or so some weak consumer sentiment readings. Americans have been through a lot. The pandemic took a tremendous toll on American lives and livelihoods and people's ways of living and on their children. And we were through a period in which inflation was higher than we had really seen since the late 70s or early 80s but it has come down quickly. You mentioned the growth statistics in this morning's strong report the inflation report for the last quarter of the year. The core PCE price index which is a measure the Fed focuses on very heavily came in at 2% for the last quarter of the year and the broader index including food and energy came in even lower than that. So I do think that inflation is coming well under control. At the same time that if you go back a year and you asked people what they thought the economy, the labor market would be at this point they thought a recession was all but inevitable. And clearly we haven't seen that. We continue to have a very strong labor market, although perhaps some of the pressures in the labor market are easing somewhat, but good strong labor market. And so I think Americans have been through a period in spite of the fact that inflation's come down. If you go back to pre-pandemic, and look at the level of prices, some things that are important in budgets, rental apartments, food, they are up, you know, in some cases say 20%. And so there was a period in which that was a great concern. Prices for a while increased more than wages. Now the opposite is true. Wages are now increasing at a faster rate than inflation. People are getting ahead. They're seeing their fortunes improve. And I believe if inflation stays low, they'll begin to regain their confidence in the economy. And I think we're seeing that that's possible.

I think that's going to be very important. So, I think if inflation remains low, the labor market remains strong so people feel good about their job prospects. Yeah. I think we'll see sentiment improve and I mentioned in my speech investments that we're making in our economy and investments take a while to pay off. But more and more people are going to see that roads on which they may be spent hours a day stuck in commutes that have been terrible are being improved. That bridges that were on the verge of collapse are being rebuilt. That internet is becoming widely available even in areas where I remember during the pandemic it was heartbreaking to see families would sometimes drive after dinner to a McDonald's parking lot so that their kids could have access to the internet because they didn't have it in their own area and all of that's changing and investments there. So many investments in workforce training and development. New investments in manufacturing facilities that are being built. Many of them in parts of the country that hadn't seen that in a long time. Huge surge in clean energy jobs. The Midwest becoming the new battery belt of the country. I think we're seeing good new jobs being created and jobs for which you may need technical training but a college education isn't required. You know, we're investing in many things that had been ignored for decades. There had been a focus on giving tax incentives for private investment and you know now we're investing in workers in training in public infrastructure in parts of the country that really haven't seen that. We've taken many steps to make funding available for small businesses in areas and people in areas of the country that haven't had access to capital. And over time, I really believe people will see a remarkable payoff.

Well, I strongly feel and it's partly my job as Treasury Secretary to endorse policies that are going to keep us on a fiscally sustainable course. We went through a period in which interest rates were exceptionally low and in spite of the fact that the ratio of debt to GDP went up the cost of servicing that debt was exceptionally low. And I do think sometimes if you say a number the absolute level of our public debt is 34 trillion and that is a scary number. But we also have a huge economy and I think focusing on the interest costs associated with that debt in real terms is a better way to look at it and so far that's been quite manageable. Now if interest rates stay much higher for longer and because of demographics of the country because of an aging population we do need to take steps to make sure that our deficits come down and remain at manageable levels and we need Congress and the administration to work on that. The president at the same time I also believe it's important to invest in our economy and it's not wrong to do that. We borrow to invest when the payoffs are sufficiently high and for many of the investments I've discussed I believe the payoffs are sufficiently high to merit borrowing for them and we'll see a payoff in growth and tax revenue. But the president has signed bills that reduce the deficit by a trillion dollars over the next decade. And he proposed a budget for 2024 that has an additional $2.5 trillion of deficit reduction. And that comes in a variety of ways. I talked about tax fairness. And there are some proposals including, you know, there was a corporate alternative minimum tax that was passed to ask corporations and the wealthy to pay their fair share. But in addition, we allowed the funding of the Internal Revenue Service to fall to dangerously low levels. And what we have been faced with now is a tax gap. And by that I mean the difference between the taxes that are owed under our existing tax law and what's actually collected that that gap has been estimated at $7 trillion over the next decade. So investing in the IRS is a very important way to close the deficit and to regain the revenues we should be collecting under our existing tax code. So we're beginning to do that. Cutting prescription drug prices in Medicare both lowers costs for households and also has a substantial benefit for government spending. And I do believe there are ways to raise the revenue both to invest in America and stay on a fiscally sustainable course.

Well, so this was, you know, you have a significant number of highly profitable corporations that in their financial statements are telling their investors that they had enormous profits and yet have so many ways of avoiding taxes that there are some corporations that have actually been paying less than that. In some cases, no taxes. And so the corporate alternative minimum tax was designed to ensure that, and this really only applies to corporations with over a billion dollars in profits, not a billion dollars in sales, but a billion dollars in profits that they need to pay at least 15%. I mean to have a situation where nurses and firefighters are paying over a larger share of their income than America's most profitable corporations strikes me and I think most Americans is unfair. It's just gone into effect. Corporations subject to it are paying estimated taxes and we don't yet know what it's going to raise. This is a very novel tax. We're involved at Treasury in trying to write the regulations about exactly how that works and what's included in it.

Well, we certainly the administration has put in place other proposals to collect taxes from corporations. For example, one of the things that I did during the first couple of years of the administration was to engage in an international negotiation that brought together over 130 countries to agree on a minimum tax that would be applied by all countries around the globe to the profits earned by their multinational corporations outside of their home countries. So it would be US multinational incomes being earned abroad. We do have such a minimum tax. We're one of the only a few countries that have had it. It was at 10 and a half% and the proposal was to raise that to 15% and make it apply in a country by country basis and that's important both from a revenue raising point of view. We've not adopted it yet but quite a number of other countries have now adopted it. It's gone into effect in the European Union. The UK is putting it into effect. Japan. So many of the countries that we compete with in the global marketplace have now enacted this tax. And what it really was designed to do was to stop what was a global race to the bottom in which countries have been competing with one another over decades to try to attract international business by cutting corporate taxes. The US cuts taxes. Other countries respond by cutting taxes. At the end, none of the countries collect very much tax revenue at all. And the benefits mainly go to corporations that are playing one country off against another. So, I would like to see, the president would this new 15% it's a different than the one we talked about passed into law and there are other proposals that I personally feel make the tax system fairer and can contribute to revenues we need.

Well, let me say they are both extraordinarily fantastic jobs with lots of responsibility associated with them. And you know, it's an honor to be entrusted with any of these jobs. It's really it's and it's a privilege to be able to hold them. I would say that the range of responsibilities at the US Treasury Department are greater than in the Federal Reserve. That as Fed chair you can focus on the economy, not a small thing by any stretch of the imagination. But the economy, bank supervision and the payment system and at Treasury we have a thousand people who are working on money laundering, addressing illicit financial flows that support terrorism and sanctions against malign actors around the globe. We have responsibilities for our international economic relationships with countries all over the world. We were given responsibilities to actually conduct over a trillion dollars of programs that were part of the American Rescue Plan from a $350 billion program of support to state and local governments to a program that has been allocating funding all over the country for access to the internet. So, we've been running those programs. We've been entrusted to write all of the tax rules pertaining to the vast array of clean energy credits in the Inflation Reduction Act. And then when we have a little extra time, we're working on trying to make sure that the Internal Revenue Service is restored to the level of effectiveness and support of Americans with respect to customer service and access to benefits that I think all of us should want to see. So there's a lot to do. But the one thing I will say is that both institutions are filled with dedicated public servants who are committed to strong public policy, to integrity in how they conduct themselves. And it has been my privilege in both jobs to work with really dedicated, committed, talented people who are serving the American people.

Thank you very much.