Years of pandemic supply chain disruptions have left the world dealing with high inflation. Then, a war in Ukraine unfolded, one that has shaken worldwide supplies of grain and oil and gas.
There are also the natural disasters that have intensified with climate change, like the hurricane barreling toward Florida at the moment.
All of these factors have had substantial effects on the American economy. And one person whose purview it is to help the country absorb all of those impacts is Treasury Secretary Janet Yellen.
Recently, she has been promoting the climate and clean energy goals of the Biden administration. She spoke with All Things Considered to explain these priorities and how they will affect the future of the American economy.
This interview was edited for length and clarity.
Interview highlights
On why the Biden administration connects climate change to the economy
Well, over the last several years, our economy has been struck by a series of supply shocks, the pandemic. We saw supply chain problems. And then with [Russian President Vladimir] Putin's war in Ukraine we saw big increases in both energy prices and food prices. And many economists believe that supply shocks like this are only going to become more frequent, especially as the incidents of billion dollar-plus weather events and fires has increased and is likely to continue to increase.
So an important part of the Biden agenda is to try to make our economy not only more productive, but also more resilient. Three key pieces of legislation that have passed in the past year — the Infrastructure bill, the CHIPs bill and the Inflation Reduction Act (IRA) — all make very important contributions. And a very important area is energy security. If we were more dependent on the wind and the sun for electric power, we would be much less vulnerable to the kind of geopolitical shocks that we're experiencing with Russia and Ukraine and, of course, other parts of the world where there are issues that can lead to skyrocketing oil prices.
On how the Biden administration plans to induce large private investment to reduce emissions
So, the Infrastructure Act and the Inflation Reduction Act provide very important incentives that will generate historic investments by the private sector in expanding clean energy.
And I visited today a solar energy firm called Cypress Creek that is vastly increasing its investments in solar energy. And these investments are made possible by the fact that there are more generous clean energy incentives in the IRA to make big investments to deploy renewable energy.
On how possible it is to tackle inflation with climate change initiatives
Well, look, we have to address both short-term problems and longer-term problems. And the investments in this historic legislation are mainly geared toward the longer-term issues around climate change. Although the Inflation Reduction Act will significantly lower the cost of drugs and health insurance, and those are short-term gains that offset some of the other cost of living increases that Americans are experiencing.
And we're doing other things that are supportive of the Fed's efforts. We've had historic releases of oil from the Strategic Petroleum Reserve, and Americans have now seen gas prices fall substantially off their peak. We're trying to also address the cost of oil here and globally by imposing with our G-7 allies a cap on the price of Russian oil. So we're taking complementary actions, but recognize the Federal Reserve has the primary role to play here.
On whether reining in inflation is more critical than the risk of recession
Well, I think it is critical to bring down inflation. There is the risk that if it doesn't come down over the next several years, it could become endemic in the United States, which could require a significant downturn to bring it down, as we saw in the early 1980s.
We don't want to get into that kind of situation again. But the United States is better poised, I think, to see inflation coming down while maintaining all the gains we have achieved in the labor market over the last year and a half. Household finances are very solid. Our banking system is strong, and I believe there is a path to bring inflation down while maintaining a strong labor market. And while there are risks, it's not guaranteed. I'm very hopeful that we can achieve that kind of outcome. I think it's possible.
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