Remarks by Secretary of the Treasury Janet Yellen reflecting on the Joe Biden-Kamala Harris administration’s economic record.

Office of Public Affairs press release:

WASHINGTON – Today, at 12:50 PM, Secretary of the Treasury Janet L. Yellen will travel to New York, New York, in her last full week in office, to deliver remarks to the New York Association for Business Economics (NYABE) and accept NYABE’s William F. Butler Award. In her remarks, Secretary Yellen will reflect on her tenure as Secretary of the Treasury, the Biden-Harris Administration’s economic agenda, and the historic economic recovery from the pandemic. A livestream of Secretary Yellen’s remarks will be available here. 

The following are excerpts from the Secretary Yellen’s remarks as prepared for delivery: 

“I will argue that the U.S. economy has done remarkably well in the aftermath of the pandemic. This fact becomes even more apparent when the recovery is placed in the proper context, namely by comparing U.S. economic outcomes to those in other advanced economies, to performance in past recessions, and to what economists forecasted. U.S. outperformance becomes clearer still if one considers an important counterfactual: what likely would have happened under an alternative approach that focused only on inflation and not on unemployment. All policy choices entail tradeoffs, but the Biden Administration made sound decisions that set the economy on a strong course.”

“I’ll begin my evaluation of the recovery by going back four years. President Biden took office at a time of profound fear and uncertainty. Thousands of Americans were dying each day, and the unemployment rate exceeded six percent. America faced the tail risk of an economic crisis that could match that of the Great Depression.

“In response, the Biden Administration acted quickly and decisively, vaccinating millions to save lives and allow businesses to reopen safely. Pandemic disruptions to supply chains and large sectoral demand shifts led to shortages of many goods and services, pushing up prices. So the Administration worked to unsnarl supply chains by unclogging ports and rapidly increasing the production of some essential goods. These actions helped to restore supply. At the same time, the American Rescue Plan supported demand, including through stimulus checks, monthly child tax credits, and enhanced unemployment insurance. These measures also mitigated hardship and bolstered the financial positions of households and businesses, reducing downside risks. The Administration subsequently navigated additional challenges, including the energy price shock resulting from Russia’s invasion of Ukraine, a regional banking stress that posed systemic risk, and two debt limit impasses.”

“Virtually all advanced economies experienced a significant spike in inflation. But in the United States, inflation fell earlier than in other G7 economies. At the same time, America enjoyed strong growth. Real GDP now exceeds pre-pandemic levels in all G7 economies. But it grew by more in the United States: by 11.5 percent from the end of 2019 to the third quarter of 2024, followed by 7.3 percent in Canada and 5.6 percent in Italy. This is largely attributable to robust U.S. productivity growth, which far outstripped productivity gains in other G7 economies.

“At the same time, America quickly achieved and has subsequently maintained a uniquely strong labor market with notable real wage gains. In the period from Q4 of 2019 to Q2 of 2024, the United Kingdom is the only other G7 country that also experienced substantial real wage growth. Real wages grew modestly in Canada, remained essentially unchanged in France, and declined in Germany, Japan, and Italy. The Economist magazine’s mid-October issue perhaps sums it up best, designating the U.S. economy the ‘envy of the world.’”

“Alongside these three comparisons, we should also consider a counterfactual: how inflation and labor market outcomes would have differed under alternative policy choices. With respect to inflation, it’s true that the prices of many everyday goods soared in the aftermath of the COVID-19 pandemic, placing a major strain on many American households. However, as the supply disruptions that drove much of this inflation abated and labor market disruptions subsided, the pace of inflation cooled dramatically. With respect to the labor market, support from the American Rescue Plan substantially offset the income gaps confronting roughly 10 million people who had become unemployed or had left the labor force by the end of 2020. That both averted significant hardship and supported demand, which allowed Americans to get back to work quickly. The rapid decline in unemployment enabled the United States to avoid labor market scarring—the erosion of skills and reduced employability that can result from long periods of unemployment—and thus avoid an associated reduction in future potential output.

“Now, consider the likely consequences of an alternative fiscal response, one solely aimed at preventing the post-pandemic surge in prices without considering the consequences for unemployment. To prevent that inflation surge, fiscal policy would have had to be much tighter. Indeed, a contractionary fiscal policy would likely have been needed to offset the inflationary impact of the pandemic-induced contraction in supply. Such a policy would have withheld critical aid from households and businesses and would likely have led to far lower output and employment. That could have meant millions more people out of work, households without the income to meet their financial obligations, and lackluster consumer spending.

“An important ‘what-if’ exercise would ask: how much more unemployment would have resulted from a fiscal contraction sufficient to keep inflation at the Fed’s 2 percent target? The answer is ‘a lot,’ although the exact magnitude depends importantly on some key parameter values, particularly the Phillips curve slope, which measures the sensitivity of inflation to a demand-induced contraction in output. Most estimates of the Phillips curve find it to be quite flat. That implies that the employment and output cost of suppressing inflation would have been very substantial. But researchers debate whether such an estimate applied during the pandemic, which was an unusual period characterized by shortages of production capacity in critical sectors and some significant labor market bottlenecks that restrained supply. Some researchers argue for a higher estimate of the Phillips curve slope, and consequently a lower employment and output cost. Such differences notwithstanding, it is widely accepted that some increase in unemployment would have been required to offset the pandemic-induced inflation. Estimates from representative models find that the unemployment rate would have had to rise to 10 to 14 percent to keep inflation at 2 percent throughout 2021 and 2022. That would have meant an additional 9 to 15 million people out of work.

“The U.S. economy now enjoys solid growth, low inflation, and a strong labor market. But much work is still needed to address the adverse structural trends that make it difficult for so many families to achieve or maintain a middle-class life. Traditional supply-side approaches wrongly assume that policies such as deregulation and tax cuts for the rich will fuel broader economic growth and prosperity. Modern supply-side economics, in contrast, rejects this trickle-down approach. Instead, it aims to expand our economy’s capacity to produce in a manner that is both inclusive and environmentally sound. It seeks to reverse decades-long underinvestment in infrastructure, the labor force, and research and development that have held back productivity growth. And it embraces collaboration between the public and private sectors, including through market-based incentives for critical investments.

“Over the past four years, the Biden Administration, acting on this approach, has made significant investments in infrastructure, R&D, and strategic industries, including semiconductor manufacturing and clean energy. Support to state and local governments during the pandemic has enabled their capital investments as a share of state and local spending to grow more over the past two and a half years than in any period since 1980. This approach is also mobilizing private capital. Since the beginning of the Biden Administration, announced private sector investments in clean energy and manufacturing in the United States have surpassed $1 trillion. Following the passage of the Inflation Reduction Act and the CHIPS and Science Act, the pace of factory construction of computer, electronic, and electrical facilities more than doubled, with the increase concentrated in high-tech manufacturing facilities, including those producing semiconductors and electric vehicles. I am glad to have traveled as Treasury Secretary to see these investments firsthand, from a facility producing parts for electric vehicle batteries in Kentucky to a solar cell manufacturing factory in Georgia.”