Treasury Secretary of the United States Janet Yellen says she would judge the effectiveness of the coronavirus stimulus package of President Joe Biden by how rapidly it takes the US economy back to pre-pandemic levels of unemployment.
Yellen also played down the elevated debt levels that will be incurred by Biden’s $1.9 trillion American Recovery Plan being addressed in Congress in an online event in the New York Times newspaper. She said that US interest expenses as a share of gross domestic product (GDP) are at 2007 levels due to low interest rates.
Compared with 3.5 percent before the pandemic, the actual US unemployment rate is 6.3 percent, a level generally known as successful full employment. But Yellen said that because four million people fell out of the labor force during the COVID-19 pandemic due to child care commitments, the effective unemployment rate is close to 10 percent.
“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 invest the money required to get the economy back on track quickly, that would take a toll on the fiscal soundness of the US, citing the long, slow recovery from the financial crisis of 2008-2009.
“So by having a stronger economy, the money that’s spent partially pays for itself,” Yellen said.
She said conventional debt appraisal indicators, such as the US debt-to-GDP ratio of 100 percent, are less applicable in an environment of very low interest rates.
A ‘more meaningful measure’ was interest payments on federal debt as a percentage of GDP, which is no higher at approximately 2% than in 2007, when interest rates were slightly higher.