Right before another president ial election. The big worry is uncertainty about trade. The u. S. Is threatening to ramp up tariffs on china, and it isnt clear when it will stop. Corporate executives say the uncertainty is making them less inclined to make new investments until the coast clears. Meantime, economies in the rest of the world are slowing. Now, in times of trouble the Federal Reserve usually cuts Interest Rates to make it cheaper for businesses and households to borrow, invest and spend. The fed has started doing just that, but the feds biggest critic, president donald trump, doesnt think hes moving fast enough or aggressively enough. Im joined here today in washington by a person who understands these issues and whats at stake the better than virtually anyone else. Shes janet yellen who served as chair of the fed from 2014 to 2018 and is currently a distinguished fellow in residence at the washington, d. C. Think tank, the brookings institution. Chair yellen, thanks so much for joining us. Lets get right into it. As you heard in my introduction, there are headwinds facing the economy. Are we going into a resession . So i think the answer is most likely no. I think the u. S. Economy has enough strength to avoid that, but the odds have clearly risen, and theyre higher than im, frankly, comfortable with. You mentioned in your opening remarks a slowdown in the Global Economy. Were seeing signs of a clear slowdown in china, in asia, in europe, germany has seen some weak Economic Performance lately. And i think as you mentioned, uncertainty about trade is having a marked impact on Business Confidence. Its had some direct effects that have been negative on the Global Economy and on the u. S. But probably more important, or its damaged Business Confidence and led to a great deal of uncertainty thats making businesses put investment projects on hold. We actually saw a decline in investment last quarter. Right. In the United States. Jon now, investors often look at the baer of interest behavior of Interest Rates to figure out what signal theyre sending about where the economys going. We have something now called an inverted yield curve where longterm Interest Rates are lower than shortterm Interest Rates. Can you explain to us what signaled thats signal thats sending and what it means for the broader economy. So historically, its been a pretty good signal of recession, and i think thats why markets Pay Attention to it. But i would really urge that on this occasion it may be a less good signal. And the reason for that is that there are a number of factors other than Market Expectations about the future path of Interest Rates that are pushing down longterm yields. Weve had asset purchases, quantitative easing not only in the United States, but also in europe and in japan, we have safe haven flows into the United States at a time of uncertainty. Ine nation risk is markedly diminished, and thats led to socalled term premium in longterm rates is negative, is judged to be negative at this point. Jon right. It means that even aside from anyone worrying about a recession, the yield curve tends to be flatter. So concerns that Interest Rates maybe will move down can cause the yield curve to invert. But it has different meaning than in the past. In the past typically we had recessions when Monetary Policy was tight, when shortterm rates had been raised to higher levels than were normal. And the expectation that short rates are high, theyll go down eventually caused the yield curve to invert. This time is different, although clearly markets are worried about a recession and do envision some further Interest Rate cuts. Jon no, you used those words that economists often regret, this time is different yes. Yes, i did. Jon so when it comes to Interest Rates, its the case that shortterm Interest Rates in the if u. S. Are very low today compared to where with theyve been in the past. They went up to 19 president in the really 80s 19 in the early 80, and that caused a recession. In this case theyre certainly low, theyre near 2 , but theyre much higher than in other countries. Theyre negative in places like japan and europe. So relative to the rest of the world, is it possible that the fed still went too far even though theyre too low . Well, i think it was appropriate for the fed to raise rates given how well the u. S. Economy was doing. Last year inflation was around 2 , the Unemployment Rate fell to levels that arguably are even below those that are sustainable without inflation pressures building. And i think it was appropriate for the fed to move rates closer to something judged neutral. Jon right. But i do think the uncertainty around trade has really had a damaging effect on the Global Outlook and on Business Sentiment and manufacturing in the United States. And that is a change, and i wasnt surprised and thought it was appropriate for the fed to cut rates at their last meeting. Jon given that the challenges the economy faces now are on the trade front, thats not something the fed controls. Can fed Interest Rate cuts fix the problems that you see the economy facing right now . Well, it certainly cant do anything to change the impact of trade uncertainties on Business Investment or the direct impacts of the tariffs on the economy. But it can generally lead to more financial more accommodative financial conditions, lower longterm rates, to some extent that has an impact on the dollar, on stock markets and on mortgage rates. And it can support other sectors of the economy. Its not a cureall, and its certainly not well targeted to address the particular concerns jon it sounds like youre saying the fed should keep cut anything this environment. Well, i would, you know, the economy let me just say i think the u. S. Economy continues to do well in spite of the slowdown in the Global Economy. We have an economy thats creating more jobs on a monthly basis than are consistent even with the Unemployment Rate stabilizing at 3. 7 . And inflation looks like its in the vicinity of 2 , so consumers are doing well. We have strong Consumer Spending thats twothirds of all spending in the economy. A slightly more expansionary fiscal policy. So i dont think the u. S. Economy e is weak now. I have concerns that it could weaken jon ing right. Because of the Global Economy and its weakness and because of trade. But i think the u. S. Economys doing okay now. I would be watching the outlook, seeing how conditions evolve and making decisions going forward. You know, as chair powell and his colleagues have said, really try to keep the expansion going. Jon well, thats a relief that you dont see that the outlook doesnt look too bleak. 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And when it is, a few hours of shuteye to rest up for tomorrow, the day well finally get something done. but some give their clients cookie cutter portfolios. Fisher investments tailors portfolios to your goals and needs. Some only call when they have something to sell. Fisher calls regularly so you stay informed. And while some advisors are happy to earn commissions whether you do well or not. Fisher investments fees are structured so we do better when you do better. Maybe thats why most of our clients come from other money managers. Fisher investments. Clearly better money management. Jon my guest is former fed chair janet yellen. Thanks so much for being with us. My pleasure. Jon lets talk a little bit about the fed as an institution. Weve talked about the economy and the outlook. You wrote an editorial with three, the three former living fed chairs we did. Jon paul volcker, ben bernanke and alan greenspan, talking about fed independence. Tell us why you wrote that and what you said. Well, were concerned that fed independence is under threat, and all of us feel very strongly that in terms of the u. S. Economy performing well and the fed being able to play the most constructive possible role in end suring that that in insuring that that the, its very important that the fed be able to make decisions in an independent way thats not color by politics or political pressure. And all of us have had the experience of being able to make decisions in an environment where sometimes one has to make as a fed chair decisions that are the unpopular or difficult in the best interest of the economy. Congress has assigned the fed two very important goals; maximum employment and low inflation or price stability. All four of us have done our very best to try to pursue those objectives, and weve been able to do so and gain the confidence of markets in the process by explaining what were doing but also a making the best decisions we can based on the facts as we have them and what we think is in the best longrun interests of the economy. Jon so i want to be clear and direct about the political threat that you see. Its President Trumps the yes. Jon criticism of the fed chair, jerome powell. Can you talk a little bit more about that . Yes. Hes been relentlessly critical of fed chair powells decision. I think hes made clear in his interviews and tweets that he doesnt believe that the fed should be independent and extolled the situation he sees in china and other countries where Central Banks are not independent. And, you know, independence is something that Central Banks around the entire world have been granted by their legislatures because its widely appreciated that Economic Performance is best when the central bank is allowed to act independently. Jon theres been talk about whether he could fire the fed chair there has been. Jon if you were in that seat and the president tried to fire you, what would you do . Well, i would do the same thing that chair powell has indicated. Chair powell has said that he would not be willing to resign if he were asked to. I dont believe that its legal for the president to fire the fed chair. Both the governors, the seven governors of the fed and separately the chair and vice chair have Term Appointments that are senateconfirmed and can only be removed for cause. So i dont believe its legal to fire the fed chair. I would certainly insist, as chair powell has, that the i would serve my term out. Jon the verdict might not come from a court, it might come from the markets. How do you think the markets would respond if the president tried to fire the chair of the Federal Reserve . I think it would be very disruptive to markets. I think the knowledge that the fed is looking at the data and making decisions about policy in a way thats based on its congressional mandate when communicating about it is not trying to take shortterm political pressures into account its very important to market constant jon weve reported that the fed chair is just keeping his head down and focusing on the job and tuning out the political pressure. How hard is it to do that kind of thing in this environment when youre under relentless attack from the commander in chief . You know, i think thats, that for any fed chair would be a reason to feel stress. But, you know, i admire what chair powell has been doing. I think that he has tried to tune it out. I have a lot of experience working with that committee. Its a Diversion Group that Diverse Group that engages in robust debate thats never been political. There are transcripts of all the meeting that have occurred in history, and i think jon ive read them many times. [laughter] i think its pretty clear from reading those transcripts that politics doesnt enter that room, and thats a tradition that is important to maintaining the feds apolitical, nonpolitical decision making. I think chair powell is ignoring the pressure that hes receiving from the president. But nevertheless, it means that market participants, a tweet will always be speculating what role politics played. Jon right. And even if the answer is, none, it didnt play any role, i think that type of speculation is not helpful. Jon right. Okay, chair yellen, stay with us for one more second. When we come back next, were going to be talking about unemployment at historic lows. Is that the most important story about the health of the labor market . Well look at that when we come back. And. Thats your basic threepoint turn. [ scoffs ] if you say so. Im sorry . What teach here isnt telling you is that snapshot rewards safe drivers with discounts on car insurance. What . Or maybe he didnt know. [ chuckles ] im done with this class. Youre not even enrolled in this class. I know. Im supposed to be in ceramics. Do you know room 303. Oh. Thank you. Yeah. Good luck, everybody. Oh. Thank you. Yeah. Award winning interface. Award winning design. Award winning engine. The volvo xc90. Our most awarded luxury suv. Jon im back with janet yellen. Thanks so much for being with us. Lets talk a little bit about the job market. Before you became a Federal Reserve official, you were a labor economist. Yes. Jon you write about, you wrote papers about worker. I did. Jon tell us what in this environment, in a 21st century economy with so many challenges in terms of automation and globalization, what do our viewers need to do to best prepare themselves to drive in a 21st century economy . Well, workers have been under a great deal of pressure in this economy now for decades, at least since the mid 80s. Technological change and globalization together have worked to eliminate middle class jobs and to put downward pressure on the wages of those with less education. The gap between what you can earn with College Degree and what youre likely to earn if you only have a High School Degree or less has continued to grow. Right now we have a very strong job market, and thats helped to arrest some of these longterm trends that date back to the 80; less skilled workers over the last couple of years have seen larger wage increases than more skilled workers which is a wonderful thing but especially with art potential if intelligence Artificial Intelligence and Machine Learning becoming more and more important is longerterm trends that hurt skilled workers are alive and well jon how worried are you about the high cost of Higher Education . And the entry cost to get that higher degree thats going to get you that better job and the debt that comes with it . The. I am very concerned. The rewards to, at least on average, to a College Education have continued to rise. As an investment, it continues on average to be a good investment. But education costs have been rising more rapidly than other prices, and it really is a substantial barrier. So americans really need to focus on their education. Its the most important thing they can do to prepare for the future and to be able to earn a good income. But there are substantial burdens from student debt. And not everybody does well after gaining a College Degree jon right. And its important to go to an institution that trains you for jobs that are there and that has a good record of graduating people and putting them in jobs. Jon we would love to keep talking about this, unfortunately, were out of time. My thanks to former fed chair janet yellen. Coming up next, well explain why something other than the feds handling of the economy will be the focus of voters in 2020. Great riches will find you when Liberty Mutual customizes your car insurance, so you only pay for what you need. Wow. Thanks, zoltar. How can i ever repay you . Maybe you could free zoltar . Thanks, lady. Taxi only pay for what you need. Liberty. Liberty. Liberty. Liberty. carrying up to 50 times its tbody weight. Essly marches on. 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Com no more lugging your clubs through the airport or risk having your clubs lost or damaged by the airlines. Sending your own clubs ahead with shipsticks. Com makes it fast easy to get to your golf destination. With just a few clicks or a phone call, well pick up and deliver your clubs ontime, guaranteed, for as low as 39. 99. Shipsticks. Com saves you time and money. Make it simple. Make it ship sticks. Jon the Federal Reserve is a magnet for both hope and blame. When the economy and the stock market go south, investors, bankers and politicians all expect the fed to cut Interest Rates to soften the blow. Sometimes the fed itself causes the economys problems by pushing Interest Rates too high. Right now the fed and it chairman, jay powell, are getting their share of both hope and blame. This year when the economy slowed, the fed started cutting rates. Investors loved the news and stocks rallied. But President Trump continues to criticize powell and the fed for raising rates too much in the first place. Is the president right . In many other countries Interest Rates are negative right now compared to high u. S. Rates, so he might have a point, but the fed is cheerily not the whole story. Clearly not the whole story. One of the economys big challenges is a trade war that mr. Trump started to fix imbalances between the u. S. And china. The president believes, and many others agree, that china hasnt played by the rules of global trade for decades. The president ime posed tariffs to get china to change its ways. It might work as a negotiating tactic, but its also creating uncertainty for american multinational businesses. The latest stock market crash happened when the president added more tariffs. Credit or blame will fall to President Trump as to whether the economy lives up to our hopes and his own promises for prosperity. Thats it for this week. Join us next week when well be talking about the trillion dollar federal deficits and whether they matter. Right here on the wa we will see a 4 00 p. M. Eastern. Welcome to the journal editorial report. I terminate turbulent week President Trump blaming the Federal Reserve for the market meltdown but the own trade policies the own trade policies economic growth. An Investment Strategy economic and policy research firm. How worried are you now about the u. S. Economy or both