WHEN: Today, Friday, April 22, 2022
WHERE: CNBC's "TechCheck"
Following is the unofficial transcript of a CNBC interview with United States Treasury Secretary Janet Yellen and European Central Bank President Christine Lagarde on CNBC's "TechCheck" (M-F, 11AM-12PM ET) today, Friday, April 22nd. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2022/04/22/i-think-well-have-to-put-up-with-high-inflation-for-a-while-longer-says-treasury-secretary-yellen.html.
All references must be sourced to CNBC.
SARA EISEN: Hi, good morning, Carl. And yes, I am honored to welcome here ECB President Christine Lagarde and Treasury Secretary Janet Yellen. We are here at at the Treasury for IMF World Bank meetings. Thank you for doing this. I've wanted to do this with both of you for a long time. It's good to see you both.
SECRETARY JANET YELLEN: Thanks, pleasure.
EISEN: Secretary Yellen, have to start with the market which is having another bumpy day, down another 500 or so points on the Dow and and it has been a rough start to the year. Are you concerned about all the volatility as Treasury Secretary now and the influence that that might have on the country's mood, sentiment, the economy? Your predecessor, Steven Mnuchin, once called the stock market a report card on the White House?
YELLEN: Well, you know, the stock market I don't take as a reflection of the underlying strength of the economy. I think the US economy has been remarkably resilient and when you think of all the shots that have afflicted the US and the global economy, the pandemic, now the war Russia's war in Ukraine, commodity price increases, supply chain issues. The US labor market is doing extremely well and frankly, I take that as the strongest indication of how the economy's doing, and we've continued to create jobs and are, you know, back above pre-pandemic levels in terms of output. So, I think the US economy has been very resilient in the face of an enormous set of shocks.
EISEN: How has it changed President Lagarde the war in Ukraine your view of the European outlook?
PRESIDENT CHRISTINE LAGARDE: It has had a very sad outcome because I'm thinking about the people in Ukraine. I'm thinking about the people who died. I'm thinking about the devastation and the economic severe damage that it's inflicting on Ukraine. Now, you will argue that Ukraine is not part of the European Union, but it's applying for membership and it's just next door to us. So it's as if, you know, the ugly face of the war was returning to our shore, which we thought would never happen again. So that's the first, you know, horrible shock that is inflicted just next door to us. And as Secretary Yellen said, it has an impact on all our economies around the world, but probably a little more so in Europe because of the proximity because of the geography. It was, who used to say that you can only govern if you know your history and if you have a map of the world and clearly geography speaks loud and clear and we are taking a triple hit if you will. One is trade, which is luckily relatively minor in a way. The second one which is major is commodities and the third one is confidence. And on these three accounts, it's clearly going to lower and has lowered our growth and it will have impact on inflation that it will increase going forward. So, it's a, it's downside risk on growth, upside risk on inflation at a time when all of us were recovering pretty strongly after the the biggest waves of the pandemic. So, you know, we are in this sort of response mode in order to deliver on our mandate. Mine is price stability and yours is the economy.
EISEN: Well, do you think inflation is going to get worse or do you see it having maybe peaked in March?
YELLEN: Well, it may have peaked but look, you know, inflation has been high. And I think the shocks emanating from this unjustified attack on Ukraine will prolong inflationary pressures. So the outlook is uncertain. As you know, the Fed is taking steps to bring inflation down. But I think we'll have to put up with high inflation for a while longer.
EISEN: Right and the ECB, as you've said, is focused on curbing the stimulus program, you'll you'll determine by the data whether you're ready to raise interest rates to respond to inflation. Is there a growing dissent within the ECB? Are you all on the same page on that and what do you do about some members that want to be a little more vigilant on the inflation fight right now and raise rates?
LAGARDE: You know, we started that journey which you described back in December because we are data dependent, we look at our projections, we look at survey, we look at consumers' expectations very, very carefully. We monitor the risk of second round from price to wages to prices to see how anchored or de-anchored or re-anchored our inflation expectations are in in Europe and we decided back in December that we had to move towards stopping the special emergency purchase program that we had. We did so at the end of March. We decided later on February and March yet again reconfirmed that we would be reducing the net asset purchases which had been the traditional purchase program to support the impact of interest rates. And this is, you know, very likely to happen in the course of the third quarter with a high probability that it will be early in the quarter if numbers continue to be the way we have seen them—
EISEN: What about rate hikes?
LAGARDE: But we have to be data dependent and we are sequential as well. So we will stop net asset purchases in due course, as I said, third quarter high probability early in the quarter and then we will look at interest rates and sometime after the end of net asset purchases, we will look at increasing interest rates. It's not fixed and set yet as to exactly when we do that, but the journey has been approved unanimously at our last monetary policy governing council meeting and we are on that path and we're going to just carry on, step by step as we've agreed.
EISEN: Is there a chance that you would not raise rates this year because growth disappoints?
LAGARDE: You know, we look at inflation numbers, we look at inflation expectations, we look at wages, and we look at how we can best deliver on our mandate of price stability. If the situation continues as predicated at the moment, there is a strong likelihood that rates will be hiked before the end of the year. How much, how many times remains to be seen and will be data dependent.
EISEN: Meanwhile, the Fed has already started raising rates and there are now expectations in the market that we're going to see 350 basis point hikes over the next few meetings. How many can we handle without the economy going into recession?
YELLEN: Well look, I strongly believe in the independence of the Fed. And similar to the comments that President Lagarde just gave, I know they will be looking very closely at incoming data that their strategies always will be data dependent and their objectives are, of course, to bring inflation down and to make sure that inflation expectations remain aligned with price stability, but they will calibrate what they think is appropriate to achieve a kind of soft landing with lower inflation but keeping the economy on track and growing.
EISEN: Wanted to hit on something Secretary Yellen that you said this week as it relates to Europe which is you told Europe to be careful when it comes to an embargo of Russian oil and gas and that it would be very damaging to the to the global economy. Can you elaborate on what would happen if that does go through?
YELLEN: Well look, I want to make clear it's really up to Europe to decide. We're fully supportive of Europe's plan to reduce its dependence on Russia for energy supply over time. We recognize our own situation with respect to dependence on imported oil and gas is different than Europe, Europe's situation and it's up to them to decide what to do. My comment was simply that we we've already seen a jump in oil prices, oil and natural gas prices have been especially high in Europe, and there is a possibility that for example, imposing an import ban on Russian oil could boost prices even further and raise raise energy prices further throughout the entire global economy. We've spent a good deal of time this week in the meetings we've been in worried about the overall global outlook in particularly emerging markets with high debt that are, have high exposure to commodity price increases. Higher global oil prices could have a damaging effect on the global outlook as well.
EISEN: It's a problem because Europe is currently sending $850 million per day to Russia for oil and gas. So how do you think about the impact on the economy, and do you have a contingency plan if Europe does decide to cut that off?
LAGARDE: You know, I think the comments made by Chair Yellen is particularly relevant with respect to the purpose that we have. Is the purpose to implement a boycott irrespective of what the outcome or is the prospect and the purpose that we all pursue to reduce the proceeds that is collected by Russia. And if the outcome of the boycott that would be decided by the Europeans would be to increase what comes into the into the treasury of Russia, that's a complete failure of the intended purpose that we are pursuing. So, do we do the Europeans at large look at alternatives, Plan B, other sources, diversification of supply, intensification of non-fossil fuel sources? Absolutely. The European Commission together with the European leaders have decided to actually move towards a complete ban of the supply of coal, and they're now looking, that's what they're saying I'm not privy to those conversations at the moment, but they're looking at how we can move towards reducing significantly the supply of gas and finding alternative sources. You may have seen that for instance, President Draghi for Italy has gone to visit a few countries until he was stopped by COVID to see alternative sources. The German authorities have gone out to Qatar. There are lots of discussions taking place between the US and Europe at suppliers, purchases levels to find alternative sources of supply but we need to be guided by the ultimate intent that we have and and that that's clearly underway and under close review and hopefully good news soon.
EISEN: Because of the energy dependence, is Europe facing stagflation? Is that a real threat right now?
LAGARDE: If you define stagflation as a prolonged period of recession and very high inflation, the answer is no on the basis of what we are seeing at the moment. So we are not seeing stagflation either in the baseline that we have or in the scenarios that we are considering, but there is a lot of uncertainty at the moment which will depend on the efficacy of our sanctions, the scope of our sanctions, any other measures that are taken down the road and how the war develops as well. So, it's on the basis of current facts that I can say that pretty, you know affirmatively but we have to be attentive to what's, what's, what's coming.
EISEN: On the, on the sanctions front, you know, you also spoke a little bit tougher Secretary Yellen on China recently calling on them to use their influence to end the war in Ukraine and threatened that they risk a changing attitude from the from the global superpowers and the global economy. China has not condemned Russia. They appear to be buying Russian coal, Russian energy, why are we not putting sanctions on China?
YELLEN: Look, what we want to be careful of is that China doesn't do anything to undermine the impact of our sanctions and they're continuing to buy coal and oil isn't a violation, isn't a way of attempting to evade our sanctions. We would like to see China actively work to resolve this, this crisis and use their relationship with Russia—
EISEN: Why aren't you doing that?
YELLEN: To help bring this to an end. We hope that they will be more active but I have not seen China really undermine the impact of our sanctions and their behavior so far.
EISEN: Do you see China as a downside risk both from what's going on right now and COVID when they're, where they're locking down a city like Shanghai and also a potential wider geopolitical confrontation or conflict with China?
LAGARDE: You know, when we look at the tail risk at the moment and concentrate on China, there are some potential tail risks arising out of China. We have suffered the bottleneck period of the COVID. We know now from the institute study that there are about 12% of goods that are just pending waiting somewhere in the world to unload, to arrive at at ports and containers to be to be driven to destinations. 12%, it's the third time that it's at the highest level at the moment and there is no doubt that it is related somehow to the blockage and the lockdown that is imposed on on Shanghai because of the Chinese anti-COVID policies. I don't think it's only limited to Shanghai by the way, I think it goes beyond that and there are other centers of activity which are reduced, were activities reduced as a result of the COVID policy. So yes, it is it is an issue for the rest of the world. It is certainly an issue for China as well because when we look at the projection for growth that they have, it is certainly much lower than what they had expected expected and were hoping for and we heard, you know, 4.8% as opposed to 5.5 which before that was even 6%. So, domestically, the economy is also taking a hit as a result of this anti-COVID policies and you have to add to that, I think the real estate and housing sectors which are, as we saw in the last few months, also suffering so it's not a rosy situation anywhere and it certainly doesn't seem to be the case in China. So we are interrelated. We are suffering as a result of that.
EISEN: I mean, I know you said that the US economy is very strong, but there are all of these risks. We're talking about slower global growth, we're talking about the Chinese lockdowns, inflation remaining high and perhaps continuing to climb. For those investors that have worried lately about a US recession this year or next, what do you tell them?
YELLEN: I don't expect a recession. Obviously, we are living in a time that's very challenging and developments in Russia, Ukraine and commodity markets, the Chinese situation. These are all risks. And but, you know, the IMF recently this week issued their New World Economic Outlook and they downgraded their growth forecast for the United States this year, but they're still expecting growth during the year—
EISEN: 3.7%.
YELLEN: Of 3.7%, which is very solid, especially given that we have 3.6% unemployment. But you know, we have a lot of strengths in the United States. We have just a very strong labor market, household balance sheets are in good shape, financial institutions are strong, and that's a strong starting point. So, there are, there are risks out there, but I'm expecting a solid year for the real economy.
EISEN: Do you worry about a European recession?
YELLEN: Well look, the shocks that the global economy is experiencing have a negative impact on growth and, unfortunately, are escalating inflation and those are problems to all countries including Europe.
EISEN: Do you worry about a US recession?
LAGARDE: We try to support each other, you know—
EISEN: I noticed.
LAGARDE: Whether we worry or whether we cheer. I think we, there is there is a great level of support and cooperation between us and this has certainly been rejuvenated if anything as a result of the Russian invasion of Ukraine. You know, it helps finding out where the friends are.
EISEN: And one final thing that I do want to mention because of the war and because I'm speaking to you who are two of the most powerful leaders who are women, which which often doesn't get said enough, which is the the female victims as as in most conflicts and I know it's something that you are both thinking about and President Lagarde you always make a point of talking about those who suffer the most as a result of some of these wars.
LAGARDE: And that is absolutely the case. I'll tell you something. I think women were the first victims of COVID. When you look at numbers because we're beginning to collect numbers now post-COVID, you see that those who lost their job most, see that those who cared for elderly most, those who found jobs with great difficulty after the pandemic were much more women than men. Numbers are coming in, you know, about 6% of women lost their job out of pandemic, 3.2% of men did, just as an example, not to mention the perennial issue of lower salaries for the same job. And if you look at the war, it's obvious that not only women actually have enrolled to fight in the war so they're brave and courageous but they're also the prime victims because they're the prime persons who are raped, who are victimized, who are, you know, killed eventually in the atrocities that we have seen. Children and women were not spared of these. Women are often used as weapons by the enemies. It's always been the case in wars. I don't think that this one is any different at the moment.
EISEN: Well, thank you for drawing attention to it. Well, a depressing note to end on but also an important one.
LAGARDE: By the way—
EISEN: Yes?
LAGARDE: I want to mention one there was, you remember the governor of the South African Central Bank?
YELLEN: Yes, I do.
LAGARDE: She knew a bit about war because she had gone through apartheid and the, yes, and she used to say, "Men go to war, and women clean up the mess." I bet it's going to be the same yet again.
EISEN: We need more more female leaders. Thank you both so much for taking the time and for doing this special conversation. ECB President Christine Lagarde, Treasury Secretary Janet Yellen. I'll send it back to you Carl in New York.