Secretary of the Treasury Janet Yellen visited Minnesota to spotlight new initiatives the Biden administration is taking to increase the housing supply and reduce expenses for working families. Yahoo Finance's Jennifer Schonberger sat down with Secretary Yellen for an exclusive conversation in which she discussed inflation, housing, the deficit, and tariffs.

RSM chief economist Joe Brusuelas and Truist co-chief investment officer and chief market strategist Keith Lerner join Asking For A Trend to discuss Secretary Yellen's remarks. For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend.

Watch Yahoo Finance's full, exclusive interview with US Secretary of the Treasury Janet Yellen.

This post was written by Mariela Rosales.

Video Transcript

Treasury Secretary Janet Yellen visited Minneapolis to spotlight President Biden's economic agenda.

While here she unveiled four new proposals aimed at increasing housing supply while reducing expenses.

We sat down with her for an exclusive interview, our own Jennifer Shan Burger standing by now for an exclusive conversation with Treasury Secretary Janet Yellen.

Jennifer.

Thank you Julie Secretary Yellen.

Thank you so much for sitting down with me.

It is great to have you on the program.

Thanks for the invitation housing affordability has become a major issue for Americans in this country.

You're here today in Minneapolis, announcing new initiatives on housing affordability including a brand new treasury program that would allocate $100 billion over three years to help finance housing affordability.

How quickly can Americans expect relief from these programs?

Well, these are things that are in our power now with the tools we have that I think will be helpful, but I don't wanna say that there's a silver bullet.

Um I think we look to Congress to do much more.

Uh President Biden has proposed a program that would lead to the construction of 2 million um new housing units which um it would really make a sizable dent in the problem that we face.

But we wanna use every tool that we have.

And today we announced, as you said, $100 million from um returns on investments that we've been making in community development, financial institutions over the next three years.

And that can make a noticeable difference.

We're also calling on the federal home loan banks which were chartered to uh deal with housing and promote affordable housing to up their uh contributions, their use of their income to 20% of their income.

Um To help with the affordable housing situation, we made a few additional announcements today, we can do to lower burden in one of our key housing programs of the Magnet Fund and also um to help housing agencies, local housing agencies have access to um reasonable, low quality low cost financing through the federal financing bank.

It's not just low income Americans though that are grappling with housing affordability.

It's the middle class.

So why not offer tax incentives to try to increase housing supply on the market whether for home builders or investors who bought up so many of the foreclosures following the financial crisis?

Well, we agree with that.

The most important tax incentive that we have.

It's the most important affordable housing program is the low income housing tax credit and there is a bipartisan bill that passed the house that we're supported of.

We'd love to see the Senate vote.

On it, that would increase the supply of these um housing tax credits and boost affordable uh housing.

So uh President Biden has also proposed a tax rebate for first time home buyers.

And interestingly also um for sellers of homes, many of whom have seen such a big increase in mortgage rates, they took out their own mortgages when rates were much lower, they have a reason to move.

But um having to re having to buy a new house at current mortgage rates would really boost their housing costs.

They're reluctant to move and not much um housing goes on the market these days.

And this would be a credit also that goes to sellers that would help unlock the housing market secretary Yellen.

Have you been to the grocery store lately?

I have every week.

It's sticker shock, isn't it?

II I just when you look at shipping costs, those have come down.

Global food commodity prices have also come down but food prices still remain high.

I know they're not rising at the rate that they were last year, but they're still up 20% from PRE COVID.

So, should the US invest in agriculture to boost the food supply in this country?

Well, I think largely reflects cost increases including labor cost increases that um firms um grocery firms have experienced, although there may be some increases in margins.

Um uh earlier today.

Um I met with a group of CEO S including the CEO of target.

And um they explained and they've announced that uh they understand that households are struggling with uh costs including food costs and they've um undertaken uh cuts in the price of bread, milk, uh diapers, other um core purchases that are necessities for households.

And I think that's to be applauded.

I think it's, that kind of thing is helpful.

Um But uh I would be reluctant to agree that we should be involved in subsidizing.

So interesting in agriculture, I wanna ask you about your overall outlook for inflation looked like it was stalling in the first quarter.

We've gotten some better readings here in the second quarter, namely that uh cooler May CPIR and we've got another inflation reading coming on Friday.

Do you expect inflation will fall at a faster rate as we go through the summer months and the rest of the year or is it going to continue to be sort of a, a slower slog?

Well, I do expect inflation to come down and as we get into next year, I believe that inflation will uh go back to uh the fed's 2% target.

But um there's month to month variation.

And um one of the pieces that has been keeping inflation above the Fed's target is housing costs.

Um The prices re rental prices for new apartments have stabilized and in many parts of the country come down.

But people who have existing contracts really only see changes in their rental prices when their contracts renew.

And there has been a considerable run up since before the pandemic.

So it takes a while before.

Uh people who have existing rental contracts see current costs fully priced in and that's been holding um housing cost increases above normal levels.

I'm I feel pretty confident that that is something that will come down over the next year and keep moving inflation down.

And labor markets while very strong nationally are a little bit less tight than they were uh right in the aftermath of the pandemic.

So given your outlook for inflation, you say you do expect we'll hit 2% by next year.

And the fact that Americans are grappling with high home costs, part of that is mortgage rates near 40 year highs.

When do you think Americans could see interest rates come down?

Well, I'm not going to speculate on what um the FED is gonna deem appropriate.

They set interest rates in order to make sure inflation comes down, but also to um keep the economy uh operating near full employment and their projections suggest that most members of the committee um envision that there will be some interest rate cuts later this year or next year.

But it's um really depends on how the data unfolds with respect to the economy.

If rates are held at current levels through December, do we risk sowing the seeds of a recession?

Well, that's something that the FED will be looking at, as I said, the Fed wants inflation to come down and they've made clear that when they gain confidence that we're on a stable downward trend, that they think it will be appropriate to cut rates, they certainly don't want to cause a recession when it's unnecessary.

And that's the balancing act.

And you don't think a recession is in sight right now.

I think we've got a good, strong economy growth is, you know, we grew very rapidly after the pandemic, unemployment was very high, rapid growth was needed and appropriate to get people back to work.

Um Once you have an economy with a, an un employment rate, that's 4% or below, which is what we've had for, you know, well, over uh a year, two years, I mean, this is a 50 year, a record in terms of the strength of the labor market, you expect somewhat slower growth in the economy.

But um households, consumer spending remains healthy.

Investment's been strong.

I don't see the basis really for a recession in the outlook.

I want to ask you about the congressional budget office, latest estimate for the deficit.

They now say it's going to rise by 400 billion more than thought to nearly two trill this year.

Given the cbo's latest estimate and the amount of treasuries that are needed to fund the deficit.

How much longer can the treasury maintain the strategy of financing using shorter term bills without changing the long end, is it a bit lopsided?

Well, so it isn't the treasury's strategy to finance increases in the deficit um or in debt issuance by using just short term uh bills.

Um long term issuance is increased and if deficit projections um continue to increase issuance at the long end will go up as well.

But the treasury follows an approach.

Uh It has for many years of making issuance of longer term debt regular and predictable.

And so it's not something that we want to suddenly change in a dramatic way.

So if there is a shock to the economy, for example, when um COVID hit the Cares Act and later, the A RP uh were passed big increases in expenditure needed as a buffer.

What happens is the short short term debt, the market can absorb a lot of that and that's issued and then that debt is termed out over time and that's what we would we would do, but it's not a policy to just um finance by issuing at the short end.

Speaking of the CBO, they're projecting that debt will reach 100 and 22% of GDP by 2034.

Are we headed for a debt crisis?

That's if we don't have deficit reduction, but President Biden has already signed bills resulting in a trillion dollars of deficit reduction.

And his 2025 budget um proposes an additional $3 trillion of deficit reduction um over the next 10 years.

Um That's sufficient if you look at the budget projections to hold the debt to GDP ratio at more or less its current level, which is about 100% would prevent that big increase that you just mentioned.

So fiscal sustainability is important, I think we need to get deficits down to stabilize the debt to GDP ratio.

Um I think the the most important metric in judging sustainability is the interest cost of the debt and the interest cost of the debt even with higher interest rates.

Is it normal historical levels?

It's, it's meant it's something that if it stays here, um if we engage in deficit reduction so that it stays at this level, I think we're on, we'll be on a fiscally sustainable course.

So, um you know, next year we're gonna see the expiration of many of the tax cuts that were built in to the tax cut and Jobs Act of 2017.

And we have to make sure that we address that exploration in a fiscally sustainable and responsible way.

President Biden wants to protect those earning under $400,000.

Let them keep the cuts, but he would raise um funds in order to find ways to cover that so that it's uh doesn't just bust the deficit to your point.

Secretary Ellen, what impact would Donald Trump have on our economy if he's elected?

Well, look, I'm governed by the Hatch Act and um I can't get into electoral politics.

Um I, I guess I could just make a couple of policy oriented comments, which is that the signature policy from the Trump years was the tax cut and Jobs Act and it promised an investment boom which really did not materialize.

It gave huge tax breaks to corporations and to wealthy individuals.

And it resulted in an enormous increase in the deficit and lowered tax revenues below historic norms.

And I think it's responsible um for many of the problems that we face now with the um our fiscal trajectory.

And so that would concern me to leave all of that in place.

I want to ask you about tariffs.

The administration levied new tariffs on $18 billion of Chinese imports back in May.

Does the administration think that tariffs could be a bigger tool in the toolbox when it comes to economic policy?

So we're trying to use them in a very targeted way.

Um We've made a conscious decision, not only the administration, but also Congress that there are industries that are strategic, that we think it's important to have a good base of activity in the United States.

And I'm thinking particularly of semiconductors and also clean energy related um items, whether it's electric vehicles, batteries, solar panels, um wind turbines at the moment, we're heavily, heavily dependent on China for most of these things.

And China is following a strategy in which they are heavily subsidizing their industry to build capacity and they've invested to the point of massive overcapacity.

So um China for example, has enough capacity to produce solar panels that it will exceeds entire global demand.

Um We have made, you know, we have incentives for domestic producers to um engage in this activity in the United States.

It's something we think is important for job creation and for our security supply chain resilience.

And so we wanna protect uh this aspect of um our industry from what really amounts to Chinese dumping.

So um that's an area where we think there's a clear justification for protecting our industry with tariffs.

And we're not the only country that feels that way.

Um Many European countries um and others including developing countries are really suffering from this Chinese strategy of producing over capacity.

But President Biden is not proposing to put any broad based tariffs um in place.

Um doesn't see that as a strategy that's uh desirable.

And uh you know, with respect to China, he hasn't removed the tariffs that Trump put in place.

But aside from what I mentioned mentioned, these areas hasn't increased tariffs.

Secretary Yellen.

We'll have to leave the conversation there, but thank you so much for your insight.

Hope to speak with you again soon.

My pleasure.

Thank you.

That's Secretary Janet Yellen of the Treasury.

I'll send it back to you in New York reaction to our exclusive interview with Treasury Secretary Janet Yellen.

We're bringing in Joe Brusuelas, chief economist at RSM and Keith Lerner, co, Chief Investment Officer and Chief Market strategist at Truest guys.

Uh Good to have both of you on the show.

Joe.

I'll start with you.

Listen, I'll give you the floor, Joe.

You heard that interview, uh with Janet Yellen.

What, what did you make of it, Joe?

What were some of the big, the big themes, the big trends you heard?

Well, I guess the, the big takeaway I heard is, is the, the message on housing which uh the administration clearly is pushing ahead of this week's debate.

You know, they've got a very ambitious plan whereby they're gonna put $100 million on the table.

In addition to, to sponsoring 2 million homes, uh construction of 2 million homes, they've through the Fannie and Freddie Mae, uh institutions are able to offer 10,000, the first time buyers, 25,000 to first generation buyers and they're moving forward rental assistance where they can out there for uh households that are under stress.

You know, I think that uh secretary Yellen is always a very effective spokesperson.

Anytime she talks, I stop and listen to what she has to say.

And I'm in agreement our forecast in terms of the overall rate of inflation getting back to 2% is the fourth quarter of next year.

But we've got disinflation moving through the economy and I think we'll get some more.

We'll get some really nice data here at the end of the week, the day after the debate.

Yeah, indeed.

She um shared that optimism and um Keith, as you write in a recent note, you say the path of inflation and interest rates and whether the Federal Reserve can stick to soft economic landing will likely be more consequential than the election.

I wanna replay what we just heard from Secretary Yellen about uh her outlook for inflation.

I do expect inflation to come down.

And as we get into next year, I believe that inflation will uh go back to uh the fed's 2% target.

So what do you think, Keith, do you share that optimism here?

And then what are the implications for markets?

Yeah.

Well, great to be with you.

It's an election year.

So it's always an interesting times as a strategist.

Uh Well, listen, we do think we have this inflationary forces intact.

I think we think inflation will settle probably a little bit above 2% because of things like on shoring.

Um we think um energy prices will probably stay a little bit higher as well.

But the trajectory we are seeing those disinflation trends.

The one thing we're watching is to make sure it's more because of the disinflationary trends, not because the economy is weakening, causing more, you know, more of those trends to soften as a whole.

But we think all in all we're kind of normalizing in the economy back towards the 2% economy and inflation that maybe settles around 2.5% maybe around three somewhere in that neighborhood.

So we're, we're not that far off is the main thing.

But the point you just made too is, you know, the elections matter.

But our work strongly suggests other factors in arrogate actually matter more.

I have a question for each of you guys.

So short answers, please.

Uh But you know, Biden's got a closing window here in terms of improvements in the economy that voters will feel before they make up their mind to vote.

So let's call it by mid October.

Uh, Joe, I'll go to you first.

Uh Do you feel like the economy is gonna get appreciably better in ways that people will feel by mid October?

I do, I think that the economy is a funny way of trumping ideology and politics.

Rick, I think that that 40 year or 50 year low in unemployment, 4% for greater than 30 months, 15.6 million jobs that will resonate at the end of the day.

Because when voters really look at what their economic conditions they're thinking about is my income rising faster than inflation.

Yes.

Do I have job security?

Yes.

And are things getting better?

They are Keith.

Do you want to take a step?

Yeah, I say historically, if you didn't, if you don't have a recession in the, in the few years before an election, you normally get re-elected.

I just wonder if it is different this time where there's just different policy views of, of the American people that may change things because I don't think the economy is gonna get stronger from here.

I think it's likely to just stay somewhat resilient but normalizing and then employment rate likely picks up a little bit so still resilient.

So I, I just wonder this time if that's gonna be the, the, the same game changer that it has been his history.

But historically, that has been the way uh it's played out guys.

I would also, I'm also curious, Keith, uh I'll, I'll send this one to you first.

I know we look at typical election patterns and I know we always hesitate to say this time is different, but you have had uh people around former President Trump as well as him himself, sort of laying the groundwork for potentially not accepting an election result if it doesn't go his way, if you did get unrest, if you did get a repeat of a January 6th type situation, does that then end up affecting the markets and the economy sort of?

And, and as a strategist, Keith, is that something that you even think about at this point?

Oh, I, I think about it.

Um I think the reality is though you, you brought up January 6th, I mean, so markets could sell off around that uncertainty and around the election.

Is that gonna go on for weeks, a month but it's gonna go on for six months or a year.

And if you think about investing in the equity market as an example, you should at least have, you know, a 35, 10 year time frame.

So yes, it can cause uh so if we look what happened overseas recently with India and Mexico and France, so we could have a short term reaction.

But I think ultimately, once corporations know the rules of the game and who is president, they will adapt.

That's why more than anything, I have confidence in our corporations.

And again, um I think the business cycle, as mentioned earlier will have a bigger impact and that's not going to just change overnight because what happens in November, Joe uh this one for you, when will markets start pricing in uh possible election outcomes?

And what are they going to be trying to price in?

Ok.

So I don't think that they are Rick, that's the thing.

And when the time comes, they're just going to be pricing in likely whether there's going to be a tax cut, if there's going to be tariffs or if there's going to be other large scale changes to the global and domestic economic framework period.

End of sentence, Keith, uh find one of you over here, you know, obviously Biden and Trump, they don't agree on much, but there is some, some kind of common theme there, Keith here when it comes to trade, this sort of increasingly protectionist rhetoric and policy.

Um And you know, Jen Schonberger did ask um Janet Yellen about those tariffs and Yellen talk about how we try to use them in this kind of targeted way.

I'm just interested, Keith, how you think about that as a strategist tariffs, the effect on the economy in the markets?

Well, they do have an impact.

I mean, it can be somewhat inflationary.

Um We don't make wholesale changes.

I think it could affect like if you think about this election, it could affect how you think about investing internationally, could it could impact how you think about China, you could think about um you know, Mexico as an example.

Um so and I think going into the election on either side, like China may be uh a punching bag for both sides.

So you may, you may say, hey, as we get closer to the election, you probably see more negative rhetoric on China.

That's not the reason why we're avoiding it.

We are underweight and we don't like China for other reasons, but that's just one more factor on on top of that.

But one thing also, I just want to point out a lot of times I have of these elections.

There's so much discussion about the different policy, how that's gonna affect all these different sectors.

You know, we just did some work with that.

The top sector under both um Obama Biden and Trump has all been technology because where the innovation is, right?

And when Biden came into office, a lot of people said that energy and financials were going to be the worst sector because of regulation and so forth.

And those are the top three sectors as well.

So again, I, I just say this is, this is one fact that out of me, it's important.

But again, the business cycle, uh you normally is even more important than just who's in the White House.

Even if there's, you know, tariffs that are more, you know, sharp than, than one party or the other.

We shall see, gentlemen.

Thank you so much for joining us, giving us your reaction, Joe Bruce Wells and Keith Lerner.

Uh Thanks for your time.

Thank you.

Thank you.