As Treasury Secretary Janet Yellen balances the needs of a fragile economy, she is cautiously optimistic that explosive growth in artificial intelligence could boost productivity, a key metric that has fallen sharply over the past year.
speak at the meeting wealth At a CEO Initiative meeting on Tuesday, Yellen said she was not an expert on the technology but still understood its potential impact. “Progress in this area is incredibly rapid and could have a significant impact on improving economic productivity,” she said.
Yellen stressed that any gains from artificial intelligence will come from increased U.S. investment in other areas, driven by the three major spending bills supported by the Biden administration over the past two years: the 2021 infrastructure bill, CHIPS and science Act as well as the Inflation Reduction Act. Both start in 2022. She described the legislation as a “trifecta” of investing in research and development on a scale not seen in decades.
“We are restoring America’s leadership in technology,” she said.
soft landing
Yellen has been at the heart of U.S. monetary policy for decades, including four years as Fed chair from 2014 to 2018 before assuming her current role under President Joe Biden in early 2021.
The past two years of her tenure have seen the government weather a turbulent economic climate as it seeks an elusive “soft landing” to combat historic inflation triggered by the pandemic and Russia’s invasion of Ukraine. With inflation falling and experts lowering forecasts for a recession, Yellen expressed optimism about the U.S. economic outlook and spoke of the elusive Holy Grail of economic prosperity.
“Short-term inflation is declining against the backdrop of an extremely strong labor market, which is often referred to as a soft landing,” she said at an event in Washington, D.C.
As Republicans push for spending cuts — including nearly shutting down the government last weekend — Yellen said she is confident in the government’s path.
While Yellen acknowledged that the government must set spending and revenue targets to put the country on a sustainable fiscal path, she argued that a key indicator of responsible behavior is how much of the country’s GDP will be used to pay down debt. Yellen said the U.S. figure currently stands at 1%, which she called “completely normal” by historical standards and warned that it was based on significant deficit reduction over the next decade.
Although the government appears to have avoided a recession, Yellen remains hesitant to predict that interest rates will remain high to combat persistent inflation, noting that she is no longer chair of the Federal Reserve.
She pointed to structural forces that could hold down interest rates, such as an aging population, weak global investment opportunities and the propensity of ordinary people to save, arguing that they are “doing well.”
Even so, Yellen said other factors could push real interest rates higher, such as investment opportunities arising from climate change.
China decoupling
Yellen did highlight one area of the economy where the United States should exercise caution: its relationship with China.
While she said she was not a supporter of industrial policy in general, she warned that the United States has become overly reliant on China in areas such as clean energy, which she said “provides massive subsidies.”
“I don’t think we should decouple from China at all, but I do think we need to be risk-averse,” Yellen said.
She praised recent U.S. investments in areas with national security implications, such as semiconductors, and said those industries should continue to be a focus for the government. The Biden administration appears to be building a moat around key U.S. industries. Reuters Report On Monday, the U.S. government warned China that it planned to update regulations restricting the export of artificial intelligence chips and chip manufacturing tools.
“We’re kidding ourselves if we think that abandoning…semiconductor manufacturing is a smart area for the United States,” she said.
Svlook
