WASHINGTON – During a confirmation hearing in early 2021, Finance Minister Janet L. Yellen told lawmakers it was time to “act broadly” on a pandemic relief package, downplaying fears of deficits in a moment of persistently low interest rates and warning that inaction could mean widespread economic ‘scars’.
A year and a half later, prices are rising and interest rates are rising. As a result, Ms. Yellen’s role in drafting and selling the $ 1.9 trillion U.S. rescue plan, passed by Congress last March, is being analyzed against the backdrop of a growing game of accusations to determine who responsible for the highest inflation rates of 40 years. After months of fixing rising prices for temporary problems in the supply chain that would dissipate, Ms. Yellen admitted last week that she was wrong to put the Biden administration on the defensive and plunged into a political storm.
“I think I was wrong then about the path that inflation will take,” Ms. Yellen told CNN, adding that the economy was facing unexpected “shocks” that raised food and energy prices.
Republican lawmakers, who have spent months blaming President Biden and Democrats for rising prices, have happily taken advantage of the recognition as proof that the administration has mismanaged the economy and should not be trusted to remain under political control.
The Treasury Department sought to clarify Ms. Yellen’s remarks by saying that her admission that she had misunderstood inflation simply meant that she could not have foreseen events such as the war in Ukraine, new versions of the coronavirus or the blockade in China. . After an excerpt from the book suggested that Ms. Yellen preferred a stimulus package of less than $ 1.9 trillion approved by Congress last year, the Treasury Department issued a statement denying that it had called for more restrictions. of costs.
At this difficult time in her term, Ms. Yellen is expected to face difficult inflation issues when she testified before the Senate Finance Committee on Tuesday and the House of Representatives Committee on Wednesday. The hearings seem to be about the president’s budget request for fiscal 2023, but Republicans blame Mr Biden’s policies, including the $ 1.9 trillion stimulus package, for high consumer prices, and Ms. Yellen’s comments they gave them the strength to throw their first term as a failure.
“How can Americans trust the Biden administration when they are still ruled by the same people who made so many mistakes?” Said Tommy Pigot, director of the Republican National Committee’s rapid response.
Understand inflation and how it affects you
The glare is particularly uncomfortable for Ms. Yellen, an economist and former chairman of the Federal Reserve, who is proud to give the right answers and stay above the political battle.
Ms Yellen said in her opening remarks on Tuesday that the Biden administration was working hard to tackle inflation.
“We are currently facing macroeconomic challenges, including unacceptable levels of inflation, as well as headwinds related to the disruptions caused by the pandemic effect on supply chains and the effects of disruptions in oil and food markets as a result of the war. of Russia in Ukraine, “said Ms. Yellen, according to her remarks.
She cited Mr Biden’s clean energy initiatives and plans to reform the prescription drug market as measures that could cut costs for Americans.
In recent weeks, Ms. Yellen has had to defend the Biden administration’s economic policies, even when the economic team has broken down. She expressed reservations about the lack of progress in repealing some of the Trump administration’s Chinese tariffs, which she sees as “non-strategic” consumer taxes, and she is reluctant to support proposals to forgive student debts, which could further fuel inflation if people have more money to spend.
Over the weekend, Ms. Yellen came under fire again after an excerpt from her upcoming biography showed that she had tried unsuccessfully to reduce the pandemic relief bill due to fears of inflation. The finance ministry released a rare statement from Ms. Yellen on Saturday, denying that she said the package was too big.
“I have never insisted on adopting a smaller package of US rescue plans,” she said, insisting that the funds had helped the United States economy overcome the pandemic and the aftermath of Russia’s war in Ukraine.
Over the past year, Ms. Yellen has been an ardent public defender of the Biden administration’s economic agenda. She is sometimes confronted publicly with critics such as Lawrence H. Summers, a former finance minister who warns that too many incentives could overheat the economy.
For months, Ms. Yellen – and many other economists – spoke of inflation as “transitional”, saying rising prices were the result of supply chain problems that would dissipate and “base effects” of monthly figures to look worse than the prices that were reduced in the first days of the pandemic.
Until May last year, Ms. Yellen seemed to acknowledge that the Biden administration’s cost proposals had the potential to overheat the economy. She noted at The Atlantic’s future economy summit that policies could boost growth and that the Fed may need to intervene with “modest” interest rate hikes if the economy rises too much.
“Interest rates may rise to some extent to ensure that our economy does not overheat, although the additional costs are relatively small relative to the size of the economy,” Ms Yellen said.
Frequently asked questions about inflation
Map 1 of 5
What is inflation? Inflation is a loss of purchasing power over time, which means that your dollar will not go as far tomorrow as it does today. It is usually expressed as an annual change in the prices of everyday goods and services such as food, furniture, clothing, transport and toys.
What causes inflation? This may be a result of growing consumer demand. But inflation can also rise and fall on the basis of developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? Depends on the circumstances. Rapid price increases lead to problems, but moderate price gains can lead to higher wages and job growth.
Can inflation affect the stock market? Rapid inflation usually creates problems for stocks. Financial assets generally performed poorly during the inflation boom, while tangible assets such as houses maintained their value better.
But economic indicators still suggest inflation remains under control for much of this spring. In an interview with The New York Times last June, Ms. Yellen said she believed inflation expectations were in line with the Federal Reserve’s 2 percent target and that although wages were rising, she did not see a “spiral in wage prices.” “On the horizon which could lead to deepening inflation.
“We do not want a situation of prolonged excessive demand in the economy, which leads to pressure on wages and prices, which is increasing and becoming endemic,” she said, adding that she did not see this happening.
In the months that followed, as prices continued to rise, Ms Yellen acknowledged that problems with the supply chain of items such as chips – which are crucial for a variety of products, including cars – were worse than she had initially realized. . She began predicting that inflation could continue this year.
“I am ready to withdraw the word transitional,” Ms. Yellen told a Reuters-sponsored event in December, noting that new variants of the virus have confused economic prospects. “I can agree that this is not an appropriate description of what we are dealing with.
Jerome H. Powell, Fed chairman, had signaled just days earlier that the Fed would stop using the word to describe inflation, indicating that Ms. Yellen is not at odds with other key economic policymakers.
Although some Republicans have called for Ms. Yellen’s resignation, Democrats outside and inside the Biden administration have defended her over the past week.
Last week, Mr Summers told CNN that Ms Yellen had echoed the views of most key economists last year when she had reduced inflation, and that those misconceptions called for a rethinking of economic models.
“The consensus doesn’t see the risk of overheating,” Mr Summers said. “I have made many mistakes in my life, but I have seen that there is a very serious demand from the demand, which is growing and seemed plausible, given that there will be bottlenecks.”
Brian Deese, director of the White House National Economic Council, dismissed the suggestion that Ms. Yellen could be isolated as the administration seeks to change the way she communicates about the economy.
“Secretary Yellen is our keynote spokesman for economics,” Mr Deese told Fox News last week. “This will continue to be the case.”
Add Comment