WHEN: Today, Monday, March 14, 2022
WHERE: CNBC's Business Day Programming
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with United States Deputy Treasury Secretary Wally Adeyemo which aired during CNBC's Business Day programming today, Monday, March 14th. Following is a link to the full interview on CNBC.com: https://www.cnbc.com/video/2022/03/14/watchs-cnbc-exclusive-interview-with-deputy-treasury-secretary-wally-adeyemo.html.
All references must be sourced to CNBC.
KAYLA TAUSCHE: We are joined here by the Deputy Treasury Secretary Wally Adeyemo. Mr. Deputy Secretary, thank you so much for your time this morning.
WALLY ADEYEMO: Thanks for having me. It's great to see you.
TAUSCHE: It's an important conversation to have right now. First, when are sanctions going to change Vladimir Putin's behavior?
ADEYEMO: So as we've said from the very beginning, President Putin has a choice. He has a choice to continue invading Ukraine or to de-escalate. And ultimately that's a choice he needs to make. But we've made very clear to President Putin and the rest of the international community is as long as the invasion continues, sanctions will continue. And they're going to continue to put a squeeze on the Russian economy, which we've seen with the stock market being closed for several weeks now. The ruble depreciating by more than 50% and President Putin being put in a position where he has to make choices about where he's going to put his financial resources.
TAUSCHE: So far the choice has not been to de-escalate. How much pain can Russia withstand? What happens when Russian debt comes due this week? Is Treasury expecting a default?
ADEYEMO: So you're right that the Russian economy is in a state of pain. It's in a financial crisis. The financial crisis that has been caused by our sanctions but are the result of President Putin's invasion. The steps that they're taking there demonstrate that the pain they're taking is having significant impact. They stopped Russian citizens from being able to withdraw foreign currency. They're in a position where they're going to have to make choices about what debts they pay going forward. And those choices will ultimately put him in a position where he has to make a decision about whether he continues the invasion or stops that invasion.
TAUSCHE: What comes next from the West? President Zelenskyy has asked the US for a blockage of international waterways for Russia. He's asked for a full trade embargo. How likely are either of those things?
ADEYEMO: The first thing I have to say is that we are impressed and encouraged by the bravery of the Ukrainian people. The actions they have taken to stop Russia's invasion have been remarkable and we continue to support them. And what we've decided to do, and what the President's directed us to do, is to make sure that our actions are targeted at having an impact on Russia, and minimizing the impact on our allies and partners going forward. That's exactly what we're going to do. So you're going to see us continue to put pressure on the Russian economy to stop their ability to project power. We're going to continue to go after Russian elites in order to take away resources from President Putin. And then we're going to use export controls to degrade their ability to project power into the future, all of which are consistent with what President Zelenskyy has been asking us to do.
TAUSCHE: Have you identified alternatives for nickel, uranium and titanium, critical commodities that are coming out of Russia that still have yet to be sanctioned?
ADEYEMO: So you're right that Russia produces a number of critical minerals going forward. One of the things that we know is that there are plenty of supplies around the world. But the challenge of course is many of the prices for these minerals are set globally. So even if we're able to find an alternative supplier if the price goes up because of President Putin's choice to invade, the price goes up globally. So we're going to work hard to mitigate those things. But the thing that we know is that the American people and our allies are willing to pay a cost in order to make sure that we defend freedom. The key for us is to make sure it mitigates that cost as much as possible
TAUSCHE: So are you saying that Treasury and the administration have determined that the cost of blocking the export of those critical minerals that we just discussed, blocking Russian ships from being on international waters – that the cost of those actions is too high?
ADEYEMO: No, I'm not saying that at all. What I'm saying is that when we take those actions, we're going to take a look towards mitigation. To make sure that while we're constraining Russia's economy, we're actually making sure that we're having a minimal impact on our economy, on Europe's economy. Last week, the President issued an oil embargo so that Russian oil wouldn't be able to come to the United States. We're able to do that because we're in a position of strength in the United States where most of our oil is produced domestically. So what we're going to do is make sure that we take actions like that where we know the impact will be greater on Russia than there is on the United States.
TAUSCHE: I have some questions about domestic policies. But first, I want to get to the China question. Russia has had 10s of billions of dollars in reserves in China, to your knowledge has President Putin been able to access any of those reserves?
ADEYEMO: So despite the rhetoric, what we know is that China can't give Russia what it doesn't have. and what Russia needs most is it's going to need things like semiconductors going forward. Semiconductors that the China doesn't have and can't provide them. When it comes to financial assistance, again, Chinese financial institutions and the Chinese state has been very cautious about violating not only American sanctions, but the sanctions put in place by other countries
TAUSCHE: So you're saying they have not let Putin access those reserves that are in China?
ADEYEMO: We haven't seen any evidence that China has done anything to violate our sanctions. We the RMB, of course, is a tradable currency that Russia does have in their reserve basket, but ultimately Russia like any other country needs access to greater reserves than that. You heard the Russian finance minister say that half of their reserves are currently unusable because they exist in G7 countries. Without those reserves Russia has been forced to be in a place where they're trying to conserve resources stopping ordinary Russians from being able to take money out of their accounts in foreign currencies, shutting down their stock markets, and the pain will continue to build up as long as the invasion continues in Ukraine.
TAUSCHE: The National Security Adviser Jake Sullivan said yesterday that if Beijing tries to bail out they should have another thing coming. What would they have coming?
ADEYEMO: So as I said, ultimately, China can't bail Russia out of the situation that's created here. China can't give Russia what it doesn't have. China doesn't have cutting edge technology. China doesn't. China, when you think about Russian elites, they're not buying homes in Shanghai in Beijing. They're buying them in London and in New York. and what we've agreed to do amongst the G7 is both freeze their assets and seize their assets. So ultimately, while China can try and assist Russia in certain ways, they can't bail them out of the situation, and we expect China, like every other country in the world to live within the binds of not only American sanctions but the sanctions have been imposed by G7 and other countries as well.
TAUSCHE: Are you seizing crypto assets right now? I know Europe is. Where does Treasury stand on that?
ADEYEMO: We put out guidance making very clear to others that if they try to use crypto to get around our sanctions, including in Russia. We will freeze and sees those assets as well.
TAUSCHE: At what point does the does the financial phase of the US response to the invasion end, and another phase begin?
ADEYEMO: I want to be very clear, especially the Russian elites who are attempting to hide their assets by moving into family members or known associates that that phase will not end as long as President Putin continues his invasion of Ukraine. We will continue to use sanctions to hold them accountable, to limit his ability to project power going forward, and that includes coming after the elites who are close to him and coming after the assets and freezing and seizing those assets going forward, but is it safe to say.
TAUSCHE: But it's safe to say that if Russia decides to use chemical weapons, the response would not be financial in nature?
ADEYEMO: I'm not going to get ahead of what the President has said he spoke to this last week we've made very clear to the, to the Russians, the severity of taking actions like that. In terms of the human consequences, and we'll be prepared to act if they took actions like that.
TAUSCHE: The Russian foreign minister said last week that this is the end of Russia doing business with the West. What are the ramifications of that?
ADEYEMO: I think you're seeing the ramifications of President Putin's choices right now. The Russian economy is in a standstill it's in worse shape it's been in since the late 90s. As the Russian economy and stock market has been shut down for weeks, you're starting to see them conserve their resources. The price of ordinary goods for Russians have went up significantly. Inflation has went through the roof because of the actions of President Putin And what this means for ordinary Russians the choices that President Putin are making today is that their economy is going to be smaller going forward they're going to have the ability to buy fewer goods from the west going forward. And they're going to be in a position where President Putin has to make choices about whether he's going to invest in his people, or invest in invasions, like the one Ukraine.
TAUSCHE: Inflation is very high here in the US we just got another read on this last week - a lot of this is as a result of the invasion. A lot of it is also as a result of other external forces. That being said, as you discuss options to help American consumers offset this, when will the decision be made on whether to suspend the federal gas tax, where does that policy discussion stand?
ADEYEMO: Kayla, as you mentioned, the cost of high prices is something that the American middle class and working people bear every day and it's something that the President's very focused on. That's why his direction to us was that we should find things to do that have impact on Russia but minimize the impact here on the United States
TAUSCHE: But this is one of those options it is a domestic option. At what point do you think the administration will say this has gotten bad enough that we need to pull that lever?
ADEYEMO: I want to make clear to you that we're considering all options and we know the best option to reduce gas prices is to increase the supply. The challenge with some of the proposals I've seen that around tax cuts is that most of that money will go into the pocket of producers. our goal actually is to make sure that we increase the supply. That's why the President has been focused on the Strategic Petroleum Reserve, releasing more oil into the market to reduce the cost. That's why we've called on domestic producers and international producers to put more supply into the market today in America, there are 9000 permits available for domestic producers in the first year that Biden administration more oil and gas was produced then in the first year of the Trump administration's.
TAUSCHE: But there's been a chilling effect from the rhetoric of the administration, and its communications with the industry – granted, some of that is changing now. How can you say to these companies 'You need to start drilling more' when the posture of the administration for the last 12 months has been 'we're going to be moving away from fossil fuels'?
ADEYEMO: I don't think those things are inconsistent. 9000 leases being available to oil and gas producers in this country is a significant number. Last year in the first year of the Biden administration, more oil and gas was pumped than in the first year of the Trump administration, because we've created an environment but what the President has said is that while we want additional supply today, we ultimately do want to move towards a clean energy future and that should be more true today than ever, not only for climate reasons, but we're seeing today as President Putin, huge producer of oil invaded Ukraine, the price of oil went up. So moving to a clean energy solution is not only good for climate change. It's also should be a national security priority for our country.
TAUSCHE: What is the discussion around the child tax credit and the student loan, what is the likelihood that those policies get revived or extended?
ADEYEMO: Well, last week I was in Philadelphia, I had a chance to sit down with the mayor and the governor. And the reality was that for families in Philadelphia and in Pennsylvania, each one of them got $430 each month because of the advanced child tax credit the tax cut for them.
TAUSCHE: Until December
ADEYEMO: Until December, and that's why the President's focused on continue to advocate for that policy, because he knows that one of the most important thing we can do for American families today is put money in their pockets to help them deal with the high costs.
TAUSCHE: Is Congress behind that now?
ADEYEMO: We know that the majority of members in the House are behind that, we know that one of the things that presents going to continue to do his work closely with members of Congress to make sure that we advance his domestic priorities.
TAUSCHE: This week the Federal Reserve is expected to raise interest rates, for the first time in a very long time since before the pandemic. Factories closing in China. Inflation very high because of the war in Europe and now the Fed is raising rates. What happens?
ADEYEMO: One of the things that we have here in America right now is a extremely strong economy spent a lot of time talking to CEOs of big and small companies. and they talk to me about the strength of demand and that's not a mistake. it's because of the grit and determination the American people but the policy choices we've made like the American rescue plan, So we come at this period With strength not weakness, and the Fed, we believe deeply in their independence so we know the Feds going to do what they need to do to make sure that they meet their dual mandate
TAUSCHE: A lot of that demand could be at risk of going away If the war continues if this is a protracted situation, what is Treasury's outlook for a possible recession? Is that on your radar
ADEYEMO: Our view is that our view at the moment is that the US economy is quite strong. The CEOs I talked to they're not only talking about demand today, but they're talking about their earnings going forward, the challenges they face with things like supply chains and the things we're focused on. But ultimately, last year, we created 7.4 million jobs, more jobs than at any point our country's history. We have strong economic growth in the United States and our goal is to make sure that we continue those things by advancing the President's policy agenda and staying focused on his direction with regard to Russia, Ukraine, where we're going to have a significant impact on the Russian economy and minimize the impact here at home.
TAUSCHE: We're grateful for your time today. Deputy Secretary of the Treasury. Thank you so much.