By David Lawder
WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said on Monday she will judge the success of President Joe Biden’s coronavirus stimulus plan by how quickly it returns the economy to pre-pandemic levels of unemployment.
Speaking to a New York Times Dealbook online event, Yellen also played down the increased debt levels that would be incurred from Biden’s $1.9 trillion American Recovery Plan being debated in Congress. She said that due to low interest rates, U.S. interest expenses as a share of GDP are at 2007 levels.
The current U.S. unemployment rate is 6.3%, compared with 3.5% before the pandemic – a level widely viewed as effectively full employment. But Yellen said that because 4 million people have dropped out of the labor force because of child care responsibilities during the COVID-19 pandemic, the effective unemployment rate is close to 10%.
“Success to me would be if we could get back to pre-pandemic levels of unemployment and see the re-employment of those who have lost jobs in the service sector, particularly – I would also consider them a measure of success.”
Yellen said that if the federal government fails to spend the money necessary to get the economy quickly back on track, that will take a toll on U.S. fiscal soundness, citing the long, slow recovery from the 2008-2009 financial crisis.
“So by having a stronger economy, the money that’s spent partially pays for itself,” Yellen said.
She said traditional metrics in assessing debt, such as the 100% U.S. debt-to-GDP ratio, are less relevant in a very low interest rate environment.
A “more important metric” was interest payments on federal debt as a share of GDP, which at around 2% is no higher than in 2007, when interest rates were substantially higher.
The Treasury is seeking to take advantage of those rates by issuing longer-term securities, Yellen said. Asked whether the Treasury would consider a 100-year bond, she said the market for that maturity would likely be “very tiny” with “limited interest.”
(Reporting by David Lawder; Editing by Chizu Nomiyama and Mark Heinrich)
