Janet Yellen on what a successful economic recovery looks like

The US economy is still at the mercy of the pandemic. But for policy makers to help the recovery along, we must first get the virus under control, said Treasury Secretary Janet Yellen.

“Success on the public health front is a key metric that we will be watching,” Yellen said during an interview with the New York Times DealBook DC Policy Project on Monday.

Yellen, who is the first woman to head the Treasury Department, spoke about the groups bearing the brunt of the pandemic fallout — including lower-income earners, minority workers and small businesses.

“We need to make sure that those most affected aren’t permanently scarred by this crisis,” Yellen said.

While there are many facets to the pandemic’s effects, America’s unemployment rate is a key metric for the recovery, in Yellen’s view. And it’s helping to guide the tools Washington is deploying to nurse the economy back to health, she said.

“Success to me would be if we could get back to pre-pandemic levels of unemployment,” Yellen said.

We have a long way to go, as prior to the pandemic, US unemployment was near a 50-year low of 3.5%. It spiked to 14.8% on a seasonally adjusted basis in April after the health crisis hit — the highest level since the government started recording monthly rates. The jobless rate decreased sharply over the summer, before stagnating in the winter months. In January, it stood at 6.3% with seasonal adjustments.

The pandemic has also laid bare issues with the way the government measures this rate, as the misclassification of some workers has led to an underreporting of joblessness.

Given that, Yellen said, the real current jobless rate is probably closer to 10%.

The Treasury Secretary also pointed at workers dropping out of the labor force as a result of the pandemic, who aren’t included in the official jobless measures. This includes parents, largely mothers, who left their jobs due to childcare responsibilities as many schools remain shuttered.

Responding to concerns that President Joe Biden’s proposed relief package is spending money “inefficiently,” Yellen said the American Rescue Plan arranges targeted assistance in a number of ways. However, she noted, it still might not reach all Americans who need it.

“The truth is there are pockets of pain that go beyond what can be reached in those highly targeted ways,” she said, adding that the $1,400 direct payment checks would help to make sure that “pockets of misery that we know exist out there” also receive help.

Critics of Biden’s $1.9 trillion stimulus proposal have pointed at the size of America’s debt burden, which has ballooned on the back of pandemic spending.

But Yellen echoed the administration’s stance that the real danger is going too small on economic relief, not too big.

“A key job for a Treasury Secretary is to make sure the country is on a sound fiscal course,” she said. “If you don’t spend what is necessary to get the economy back on track, that has a fiscal cost as well.”

The more important metric of debt is what it costs in interest, Yellen noted. She said that with very low interest rates right now, the cost of debt is still under 2%, even though traditional metrics such as the debt-to-GDP ratio have gone up.