In a recent fireside conversation with Bloomberg News, Treasury Secretary Janet Yellen expressed her view that the US economy has reached a soft landing, despite the weakening job growth. Yellen stated that there are no "red lights flashing" for the financial system, and highlighted positive metrics such as asset valuations and leverage, which appear to be in good shape.

Yellen's comments come in the wake of a significant selloff in US equities, driven by a weaker-than-expected gain in payrolls. Concerns have been raised over the Federal Reserve potentially being late in lowering interest rates. The S&P 500 Index experienced a slide of more than 4% over the past week.

Acknowledging the risks, Yellen emphasized the remarkable achievement of reducing inflation while maintaining strong growth. She referred to current conditions as a "soft landing," pointing out that wages have been rising at a decent clip, outpacing inflation. Yellen also noted that there have been no significant mass layoffs and that monthly job gains are at a level sufficient to absorb new entrants to the labor market.

The August jobs release fell short of forecasts, with nonfarm payrolls rising by 142,000. According to the Bureau of Labor Statistics data, this is the lowest three-month average since mid-2020. However, there was a decline in the unemployment rate to 4.2%, marking the first decrease in five months, primarily due to a reversal in temporary layoffs.

Yellen also expressed her openness to further engagement between the US and China, mentioning that she would welcome a visit from her Chinese counterpart and is willing to visit China herself. This highlights the importance of the world's two largest economies engaging with each other, as their relationship continues to evolve.

When asked about a review into the acquisition of United States Steel Corp. by Nippon Steel Corp., Yellen declined to comment on specifics. However, it has been reported that President Joe Biden plans to reject the deal. Vice President Kamala Harris has also expressed the opinion that US Steel should remain domestically owned and operated. Yellen, as the head of the Committee on Foreign Investment in the United States (CFIUS), emphasized that while the US remains open to foreign investment, national security concerns regarding foreign investment must be addressed.

Regarding potential threats to the financial system, Yellen identified areas outside the core banking system that still pose risks, especially in the context of cybersecurity. She highlighted the need to address these risks, as well as the long-term fiscal trajectory of the United States. Yellen stated that the level of tax revenue has declined compared to historic norms, partly due to former President Donald Trump's tax-cut package. Looking ahead, she warned that the aging population and expanding social programs will place a significant strain on resources. Yellen reiterated the importance of reducing budget deficits to ensure manageable levels of debt and maintaining a sustainable fiscal path.

The Biden administration's proposed budget aims to keep the US within a 2% inflation-adjusted interest cost relative to gross domestic product over the next decade, according to Yellen.

Treasury Secretary Janet Yellen's remarks indicate cautious optimism about the US economy, with a focus on monitoring downside risks while acknowledging the need to address financial system vulnerabilities and navigate towards a sustainable fiscal path.