WHEN: Today, Thursday, June 13
WHERE: CNBC's "Squawk Box"
Following is the unofficial transcript of a CNBC exclusive interview with United States Treasury Secretary Janet Yellen on CNBC's "Squawk Box" (M-F, 6AM-9AM ET) today, Thursday, June 13. Following are links to video on CNBC.com: https://www.cnbc.com/video/2024/06/13/treasury-secretary-yellen-addressing-high-cost-of-living-remains-president-bidens-top-priority.html, https://www.cnbc.com/video/2024/06/13/treasury-secretary-janet-yellen-the-labor-market-now-is-resembling-what-it-looked-like-pre-pandemic.html and https://www.cnbc.com/video/2024/06/13/treasury-secretary-janet-yellen-we-should-be-looking-at-the-real-interest-cost-of-the-national-debt.html.
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: Welcome back to Squawk Box. President Biden arriving in Italy for the G7, where world leaders are going to be discussing the Russia-Ukraine war, including a proposal by the United States to use earnings from frozen Russian assets to help Ukraine. Joining me right now in an exclusive interview this morning is Treasury Secretary Janet Yellen, who has a big op-ed in the "New York Times" about this very issue. So we'll go there first. And then there's about 100 other questions I want to talk about the economy and where we really are.
JANET YELLEN: Me too.
SORKIN: But it's great to see you.
YELLEN: Thank you.
SORKIN: Explain your plan and in terms of what it means economically to try to support Ukraine?
YELLEN: Well, I think Ukraine needs to know that the allies are committed and able to support Ukraine for the long term. Russia looks like they're trying to wait us out, hope that we'll lose our resolve. And we want to take a step that will provide significant funding for Ukraine and show that we have the capacity over the long run.
SORKIN: But the big idea is to take the frozen assets.
YELLEN: Yes.
SORKIN: And the earnings that come effectively off of those frozen assets and effectively create a loan against the earnings that come off the frozen assets without providing the frozen assets themselves to Ukraine.
YELLEN: That's right. Almost $200 billion is impounded, frozen in Belgium at Euroclear. All in all, we think there are about $280 billion. But the biggest chunk is Euroclear. And those assets are generating a return that does not belong to Russia. The assets have been -- are just in cash.
SORKIN: Right.
YELLEN: But Euroclear is able to, itself, earn interest on these funds. And already the European Union has taken the step of agreeing to take that flow of, they call it windfall profits, and turn it over to Ukraine. And that could be somewhere in the three to five billion dollar a year range. But Ukraine's needs are bigger than that. And given that the leaders have committed these assets will remain frozen until Russia has ceased their aggression and paid for the damage they've caused to Ukraine.
SORKIN: So, of course, the bigger question is --
YELLEN: That we're going to make a loan.
SORKIN: Right. But why not just take the frozen assets themselves? You think that legally you can't?
YELLEN: Well, our view is that it is -- it legal, moral and economically reasonable to seize the assets. But what we're looking for is to keep the allies together, to find a way to do something jointly in a way that is agreeable to all of the partners who've been supporting Ukraine, the G7, to Europe, to other countries that are part of our coalition. And this takes the economic value in those assets and gives it to Ukraine in meaningful amount. The numbers being discussed are something like 50 billion. And this could be repeated.
SORKIN: But let's move the conversation back to the U.S. for a moment.
YELLEN: OK.
SORKIN: I'm curious about what you think is happening on the ground in terms of our economy, in particular, inflation. I'm not going to ask you to comment on Jay Powell because I know you don't like to do that.
YELLEN: I won't do that.
SORKIN: But we heard his perspective yesterday and his idea that, you know, there might be one interest rate cut on the table, maybe. But there's a larger question about where we really are in the journey on taking inflation down. There were some good signs, but there's still parts of the economy that still are hot.
YELLEN: Well, you know, we're creating jobs at a very rapid pace. But at the same time, the unemployment rate has drifted up a little bit. It's still extremely low in historic terms, more or less the lowest in 50 years. But the labor market has become a little less hot, a little bit more normal. The number of job openings has declined some. We've had a burst in labor force participation. And so the labor market now is resembling what it looked like pre-pandemic. Wages are increasing, but at a slower rate. And so that doesn't really look like it's a threat to inflation. A substantial part of the inflation we still have, inflation has come down dramatically, but a substantial part has to do with the housing market and really reflects the fact that it takes time when market rents go up for people who have rental contracts to, you know, over time their rents go up, too. But that takes a while. And so a significant share of the remaining inflation represents the slow return of housing costs.
SORKIN: On the housing front, though, how concerned are you that both -- it's hard for young people, obviously, to get into a home? That's a real issue.
YELLEN: Yes.
SORKIN: But there's another issue that may be here for a long time, which is the idea that people who own a home are trapped in the home because they can't -- they can't sell the home because of mortgage rates. And as a result, what that does both to physical mobility, but also to economic mobility in the country.
YELLEN: Well, I agree with that. And because interest rates were so low, many people don't want to sell their homes or move because they're faced with taking out a mortgage.
SORKIN: How big of a problem is that? As somebody who's thinking about running our economy, which is your role.
YELLEN: President Biden made a proposal in his most recent budget that he would give $10,000 both to first time home buyers looking for moderate price homes, but also to people who, as you described, are locked in their homes and need an incentive to sell them. There is a substantial lock in effect there that's—
SORKIN: Can I ask you another question about inflation, which is the administration and the President himself has talked a lot about what he sees as corporate greed, that the price of things has gone up almost artificially and the companies are taking advantage of customers. I asked you this question about two years ago, and at the time you said, no, no, I think it's actually more about supply and demand that's leading to this. Do you have a change in perspective?
YELLEN: Well, I'm going to say exactly the same thing. I think that inflation is about supply and demand and clearly a significant part of the inflation we had to burst after the pandemic, during the pandemic reflected supply constraints and stresses on supply chains. And also, Russia's invasion of Ukraine led to a leap in energy prices and impacted food prices globally. That said, there are many sectors of the economy where competition is limited and price cost margins are high. And it is you could call that corporate greed. There are high markups. The level of markups is high.
SORKIN: Your boss calls it corporate greed. You don't?
YELLEN: Well, you know, there's a lack of competition that enables firms to have healthy markups and profits. And our antitrust policy, which has been very active during this administration, is designed to make sure that we have effective competition in markets to hold down prices and offset that.
SORKIN: When you see polls by Americans who say that we are either in a recession today or that the economy is terrible or bad, what do you think about that?
YELLEN: Well, I also notice that when they're asked about their own personal situation, overwhelmingly people say they're fine. And when they're asked about the local economy, they also say that that's fine. But when they're asked about the national economy, they think things are not good. And that's an -- that really is something I don't think we've ever seen in the United States before. We also see record levels of new business formation, which is something you would not see unless people feel confident about the economy.
SORKIN: Isn't that misinformation? I mean, some of the polls, by the way, would suggest I mean, you've seen some political polls that say they believe that the public believes that the former president, former President Trump, is -- was better for the economy than the current President?
YELLEN: Well, you know, I think President Biden understands that people are feeling pain. And when they say this, they are concerned. I think they've seen the level of prices rise quite a lot. I mean, over 20% over the last three years or so. They can remember when the price of a gallon of milk or a loaf of bread was 30% lower than it is now. And low-income families have seen some of the highest increase in costs. That said, wages have also gone up. And the calculations the Congressional Budget Office has done show that all Americans, both those who are well off and those who are near -- near the bottom of the income distribution, are better off now. Their wages have risen more than prices. But I think people are influenced by that. And then if you go back really over the last decade, you see things that are critically important to Americans, the cost of education, the cost of housing in many big cities, the cost of childcare have gone up a lot. And life seems unaffordable. So I think high costs have been a problem in critical things that are necessities have been a problem for people, health care costs. So it is the President's top priority, even if the rate of inflation has come down, as I believe it has and will continue to, to address the high cost of living, whether it's in allowing Medicare to negotiate drug prices. He's done capping the cost of insulin co-pays. Doing what he can to bring down the cost of living.
SORKIN: Right. Talking about bringing down the cost of certain things. When you were running the Fed, you talked about debt and deficits all the time. And you encouraged Congress to try to bring those things down.
YELLEN: Right.
SORKIN: We are now at a U.S. budget deficit has reached $1.2 trillion. It has not come down. It is actually only gone up. What are you doing?
YELLEN: Well, it has come down since the pandemic.
SORKIN: Since the pandemic on a -- yes. But on a -- on a total number, we're in, we have a real challenge. Is there a plan to bring this number down materially? And I'm talking about the total -- total debt load that you see the President pursuing?
YELLEN: Well, I think that if the debt is stabilized relative to the size of the economy, that we're in a reasonable place. The way I look at it is that we should be looking at the real interest cost of the debt. That's really what the burden is. And in the budget, the President presented for this coming fiscal year, he proposes three trillion dollars of deficit reduction over the next decade. And that's sufficient to basically keep the debt-to-income ratio stable. And this interest burden would be stabilized it in historically normal level.
SORKIN: And how much of that is increasing taxes versus actually cutting costs?
YELLEN: Well, it's difficult to cut costs, discretionary spending, which is what's governed by appropriations. It is falling relative to the size of GDP. And if once you involved in looking what's -- what's in there, more than half of it is defense. It's really not possible to get cuts there. And a growing source of expenditure is for retirement programs, Social Security and Medicare.
SORKIN: I know.
YELLEN: And, you know, I think it's right, especially the Job Cuts and Tax Act --
SORKIN: Right.
YELLEN: Provisions of which will expire at the end of next year really resulted in a substantial loss in revenue. And so undoing some of that and asking the wealthiest and highest income Americans to pay their fair share and, you know, raising corporate taxes somewhat not back to previous levels is -- is part of what I think is a reasonable plan.
SORKIN: Finally, you've come out and said you are against a global wealth tax. I was interviewing President Macron. He said that it's a pity that you are against a global wealth tax. But are you for a wealth tax effectively in the U.S.?
YELLEN: Well, it's not a wealth tax, but we have proposed and do agree with the basic concept that billionaires should be paying more taxes than they are, very --
SORKIN: On their unrealized income?
YELLEN: Well, yes, because these unrealized capital gains are an enormous source of -- of income for people. And often they escape taxation completely, even at death due to step up of basis. And so, yes, I believe that is a source of income.
SORKIN: If you -- if you could fix the step up of basis issue and some of the other issues around these things, would you be an advocate of taxing unrealized gains? Because there's always a question about how the mechanics of doing it, the practicality of doing it.
YELLEN: So there is that issue. We have a concrete proposal to do it that we put forward. It would apply to individuals with wealth over 100 million dollars. And if people had their wealth in illiquid forms, they wouldn't be required to sell those assets. They could wait until to death or to later on when the assets are sold. So there are practical issues, but I think they can be addressed. And we tried to do it.
SORKIN: Right.
YELLEN: So we are definitely in favor of higher taxes on billionaires. And we have a proposal. So I just don't think we need a whole global negotiation to accomplish this. But I think it's the right thing to do.
SORKIN: It's a longer conversation. I hope we get to have it. Thank you so much for joining us this morning.
YELLEN: My pleasure, you bet.
SORKIN: Thank you again.
YELLEN: Thanks, Andrew.