Treasury Secretary Janet Yellen acknowledged Tuesday that inflation has reached “unacceptable” heights, even as she defended Biden administration-backed spending bills that Republican lawmakers allege have contributed to the problem.
Yellen addressed members of the Senate Finance Committee days before the release of Consumer Price Index data for May that is expected to show inflation remaining near four-decade highs — with Americans paying steep prices for gas and groceries.
“We currently face macroeconomic challenges, including unacceptable levels of inflation,” Yellen said in prepared remarks near the start of the hearing.
Yellen attributed the inflation crisis to supply chain “disruptions” related to the COVID-19 pandemic as well as what she described as the “effects of supply side disturbances to oil and food markets” due to the brutal Russian invasion of Ukraine.
She argued a reduction in inflation without damaging the labor market would require an “appropriate budgetary stance” as well as action from the Federal Reserve to tighten monetary policy.
Yellen was a major advocate for President Biden’s $1.9 trillion COVID-19 stimulus spending package — known as the “American Rescue Plan” — and pushed back at Republican lawmakers who have asserted it worsened conditions in an economy that already risked overheating.
“We’re seeing high inflation in almost all developed countries around the world and they have very different fiscal policies, so it can’t be the case that the bulk of the inflation that we’re experiencing reflects the impact of the [American Rescue Plan],” Yellen said.
The GOP and other critics have argued that Biden, along with Yellen and Fed Chair Jerome Powell, were too slow to react as rampant inflation took hold in the US economy.
Yellen and Powell have faced criticism for initially describing inflation as a “transitory” problem that would soon resolve itself. Earlier this month, the Treasury secretary admitted that her initial read of the economy was “wrong.”
Yellen expanded on those remarks while testifying before the Senate panel, telling lawmakers that she and Powell “could have used a better term than transitory.”
She noted that she hadn’t foreseen the full impact that various COVID-19 variants and the Russia-Ukraine war would have on the economy and its ability to recover from supply chain woes.
Yellen said she expects “inflation to remain high” through the year and noted that the Biden administration now forecasts average inflation of 4.7% this year.
Biden has largely blamed the inflation crisis on Russian President Vladimir Putin’s invasion of Ukraine as well as greedy business practices from corporate giants controlling key sectors of the economy such as meat and oil production.
When asked if she agreed that corporate greed was a key factor in driving prices higher, Yellen said she felt the “bulk of inflation” was related to imbalances in supply and demand.
Yellen spoke during a period of mounting concern that the Fed’s actions would trigger a recession. JPMorgan Chase CEO Jamie Dimon spooked investors last week after warning that investors faced a potential economic “hurricane” due to unprecedented market conditions.