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Yellen sees long-term growth as she leaves the Federal Reserve, despite bad day for the Dow

The job market and the economy are growing stronger and at a healthy pace, Federal Reserve Chair Janet Yellen told PBS NewsHour’s Judy Woodruff Friday as she wrapped up her four-year term on a momentous economic day.

The day started with a solid jobs report showing 200,000 new jobs last month and better wage growth. But the Dow Jones continued plunging during a brutal week, finishing the day down more than 665 points or about 2.5 percent. It capped the worst week for the Dow in two years.

But Yellen was focused on the long-term picture, saying that for “almost all groups in the American economy … you’re seeing plentiful jobs and wages beginning to rise at a slightly faster pace.”

In the NewsHour interview, recorded before the stock market closed, Yellen also warned that stock market valuations are elevated beyond their usual historic levels, including the ratio of price to earnings. Yellen stopped short of characterizing the market’s rise in recent months as a bubble.

Even as the market was dropping, Yellen stressed that the financial system is more resilient now than it was during the financial crisis of 2008. Still, she said, “investors should be careful and, I would say, diversified in their investments.”

Yellen also struck a sober tone on other trends in the economy. She said productivity — a key barometer watched by the Fed — has been weaker than hoped. She also said the pace of new firms being created over the past decade was slower than usual.

Other highlights of her interview:

  • Yellen stressed the importance of maintaining financial regulations, arguing that demands for higher capital from large banks was a crucial buffer for the economy. She also criticized Republican efforts to roll back regulations in the Dodd-Frank law. “I think all of us need to remember the financial crisis, the terrible toll it took on Americans — the lost jobs, lost homes, lost retirement savings,” Yellen said.
  • Yellen said it’s “distressing to see how few women have reached the highest levels in the kind of work I do — economics, business, finance.” She is the first female chair of the Federal Reserve. “Too few women I think are going into these fields at younger ages,” she said of gender equality and the dearth of women at the top levels of the finance industry.
  • Yellen said she had wanted to serve another term as Fed chair and was disappointed by President Donald Trump’s decision not to renominate her. Yellen was the first chair in the modern era to not get re-nominated after serving a full term.

Read the Full Transcript

  • JUDY WOODRUFF:

    But first, an interview with arguably the most important person influencing the U.S. economy for the past four years, the outgoing chair of the Federal Reserve, Janet Yellen.

    I spoke with her earlier today, before the markets closed and while the Dow was spiraling down to its worst week in two years, and after a solid jobs report was released.

    The economy has grown, and the longest job expansion on record has continued on her watch.

    I started by asking her overall assessment of the economy on her final day in office.

  • JANET YELLEN:

    Well, I feel great about the economy. I think things are looking very strong. The economy's growing at a healthy, solid pace.

    The job market is strong at this point. We had a report this morning, 200,000 jobs in January, average of 175,000 jobs a month over the last year. We're seeing the benefits of that, I think, for almost all groups in the American economy, and, you know, being able to find a job, seeing plentiful job openings, and wages beginning to rise at a slightly faster pace.

    You know, of course, there are still problems in the labor market, structural shifts that have created over time problems for groups. But I think, generally, the job market is strong and inflation is low.

  • JUDY WOODRUFF:

    And I want to ask you about many of those things, but in terms of growth, how long do you think this kind of growth can continue? Another two, three, four years?

  • JANET YELLEN:

    Well, the economy has been growing at 2 percent or a little bit over 2 percent for a number of years now.

    And one of the problems we face is, 2 percent is not a very high number, and yet it has been sufficient pace of growth to see a lot of jobs created, a lot of tightening in the labor market, which is good, because we had so many people who were out of work after the financial crisis. It's put them back to work. It's helped heal the labor market, and that's great.

    But the pace is not what we would ideally like to see.

  • JUDY WOODRUFF:

    You mentioned wages and the jobs report today. It did show a nice increase in wages, but the backdrop is that wages have been very stagnant for decades.

  • JANET YELLEN:

    Yes.

  • JUDY WOODRUFF:

    Do you think now, though, that we could be seeing the start of steadily increasing wages for Americans?

  • JANET YELLEN:

    Well, I do expect to see in a tight labor market over time that the pace of wage growth will inch up.

    And I think if we look not just at the series that was in this morning's report — that's pretty volatile — but a number of series on compensation for workers, we're seeing some gradual upward movement.

    But wage growth is moderate. And, ultimately, it's limited by productivity growth, which is weak, so firms are not going to be willing — or what they're willing to pay is constrained by how fast they see the productivity of their workers rising.

    And, unfortunately, for quite some time now, that's been pretty slow, and it limits gains in real income.

  • JUDY WOODRUFF:

    Do you think we're in the early stages of a long-awaited climb in interest rates that's going to continue?

  • JANET YELLEN:

    Well, it's hard to tell.

    The economy is recovering, and we're seeing solid growth. And the Federal Reserve has been on a path of gradual rate increases. And if conditions continue as they have been, that process is likely to continue. And, as it does, we would expect long rates to move up.

  • JUDY WOODRUFF:

    The markets, they have jumped around a lot this week, but, overall, we have seen a remarkable rise in the markets since the recovery started nine years ago.

  • JANET YELLEN:

    Yes.

  • JUDY WOODRUFF:

    Former Fed Chairman Alan Greenspan said the other day, he said he's seeing a bubble in the stock market and he's seeing a bubble in the bond market. Are you worried about bubbles?

  • JANET YELLEN:

    So, I don't want to label what we're seeing a bubble — as a bubble.

    But I would say that asset valuations generally are elevated, and this is a characterization that we have offered up, for example, last summer in our monetary policy report.

    For the stock market, the ratio of price to earnings, which is a measure valuation, is near the high end of its historical range. And if we look at, for example, commercial real estate and other assets, we're seeing high valuations.

  • JUDY WOODRUFF:

    So, should ordinary Americans be worried about the markets?

  • JANET YELLEN:

    They should be careful and I would say diversified in their investments.

    I think what we look at is the likely resilience of the economy and the financial system if there were to be a correction in market valuations. And, in that regard, we have a banking system that is much stronger and better capitalized and better able to withstand a shock than prior to the financial crisis.

    So, asset valuations could change. I'm certainly not predicting that that would happen, but we couldn't rule at out. But I think the financial system would be well resilient enough to absorb the shock.

  • JUDY WOODRUFF:

    Financial regulations. The president, a number of Republicans have been very vocal, and they have started to move to roll back, to weaken the regulations that were put in place after the financial collapse.

    Are there consequences to what they're doing?

  • JANET YELLEN:

    Well, in the area that I'm most familiar with in banking regulation, we put in place very strong improvements to make the financial system more resilient, more and better-quality capital, which is a buffer. If there are shocks, it serves to absorb losses and leave firms able to lend to support the credit needs of the economy.

    But there are calls among some members of Congress for cutbacks in regulation that would be dangerous. And I think all of us need to remember the financial crisis, the terrible toll it took on Americans, the lost jobs, lost homes, lost retirement savings, and make sure that we have a financial system that will not be subject to that kind of crisis again for quite some time, that's far more resilient.

  • JUDY WOODRUFF:

    Janet Yellen, you have been the first woman to hold the job of chair of the Federal Reserve. Have you felt additional pressure because of that, do you think?

  • JANET YELLEN:

    Well, I felt proud to have been the first woman to hold a job.

    I know, when I go to international gatherings of finance ministers and central bank governors, there are not a huge number of women around the table. And I would love to see that improve.

    I'm very impressed by the contribution that women are able to make at this level and every level. And I have tried to do a good job to help show that women are able to perform in the most important, critical jobs.

    I think, more generally, it's distressing to see how few women have reached the highest levels in the kind of work that I do in economics, business, finance. Too few women, I think, are going into it, into these fields at younger level, younger ages.

    The number of college majors is distressingly low. Maybe 30 percent of college economics majors are women. I would like to see that improve, because I think it's a great field with many opportunities.

    And I think, most distressing, the higher you go up the ranks, the fewer women you see. And we're really trying to understand what causes that. Part of it, I think, is the difficulty in achieving an appropriate work-life balance and the demands of jobs at high levels both in the private sector and in government.

    And I think it's important for employers to think about ways to design jobs so that they have an appropriate work-life balance and support.

  • JUDY WOODRUFF:

    You were talking to President Trump about reappointment before…

  • JANET YELLEN:

    Yes.

  • JUDY WOODRUFF:

    … he made the decision to — not to keep you on.

    You became the first chair of the board, of the Federal Reserve Board, in modern history not to be renominated after serving a full term. How disappointing was that?

  • JANET YELLEN:

    Well, I would have liked to serve an additional term, and I did make that clear. So, I will say that I was disappointed not to be reappointed.

    But I have had the privilege and the honor of serving in very high positions in the Federal Reserve system, and in government more generally, for quite a long time, as vice chair, president of the San Francisco Fed. I have really had a seat at the table through tumultuous times, including the financial crisis and the recovery and its wake.

    And I'm very satisfied with the career that I have had.

  • JUDY WOODRUFF:

    Let me ask you, finally, about how you grade yourself as chair of the Federal Reserve. You put a lot of emphasis on employment, on getting people into the work force, keeping interest rates low.

    You famously said, very early on, "We are going to at least keep filling the punch bowl until the guests have all arrived."

    (LAUGHTER)

  • JUDY WOODRUFF:

    And people — some were skeptical when you said that.

  • JANET YELLEN:

    Well, I'm not going to try to grade myself. I think that's for others to do.

    And, look, when the economy is successful, it's because the workers and households in this economy, they get up and pull up their socks and go to work every day, and businesses are thinking about how to be successful. And it's the efforts of so many businesspeople and workers, households in this economy that is responsible for the success we're seeing.

    But we have tried to create financial conditions, an interest rate environment, and financial conditions more generally that are conducive to strong growth and a recovery from the terrible toll of the financial crisis.

    So, when I see the unemployment rate decline to 4.1 percent, which is the lowest rate in 17 years, I feel very good about the progress we have seen there.

  • JUDY WOODRUFF:

    Janet Yellen, serving your last day today as chair of the Federal Reserve, thank you very much.

  • JANET YELLEN:

    Thank you so much, Judy.

  • JUDY WOODRUFF:

    And this postscript, speaking of banking regulation.

    The Fed announced just a few minutes ago that it would take the unusual step of restricting the size of banking giant Wells Fargo because of — quote — "widespread consumer abuses."

    It was reported in 2016 that Wells Fargo employees had set up more than a million fake accounts to meet sales goals. The Fed also said that it would replace four members of the bank's board of directors.

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