Yellen faces congressional interrogation over ‘wrong’ inflation forecast

By Andrea Shalal, Trevor Hunnicutt and David Lawder

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen faces a series of tough questions about how the Biden administration handled the economy in Congress this week after admitting she was “wrong” about the way inflation would take.

Yellen testifies to the Senate Finance Committee on Tuesday and the House Ways and Means Committee on Wednesday, pushing one of the most experienced, but least political, of Joe Biden’s advisers into the hot seat as Republicans attack the president on inflation that reached 40- year highs.

As Treasury secretary, Yellen, 75, was a leading voice predicting price increases would be “transient” through 2021, even as some analysts and investors warned that the US economy could overheat. As Fed chairman, she was criticized in 2017 for the opposite – cooling the economy to fight inflation that never came.

Congressional Republicans plan to question Yellen about her erroneous prediction and the role the Biden-backed $1.9 trillion American Rescue Plan played in raising prices, aides told Reuters. They would also like to hear her abandon Biden’s basic plan to raise taxes on American companies and seek more federal funding that would further fuel inflation, Representative Kevin Brady, the top Republican on the Ways and Means Committee, told reporters. .

Major unforeseen shocks, including Russia’s invasion of Ukraine and China’s recent COVID-19 lockdowns, have exacerbated the supply squeeze that has pushed up energy and goods prices in unexpected ways, argue Yellen and the White House. The “unprecedented” injection of financial assistance also contributed about 3 percentage points to fourth quarter 2021 inflation, the San Francisco Federal Reserve Bank.

While Yellen publicly retired the term “transitional” in December, she continued to reassure White House officials privately earlier this year that price pressures would likely ease in 2022, a person involved in the talks said.

Frustration is high in the White House over the chasm between the strength of the US economy’s recovery from the coronavirus shutdowns, with a strong job market and record corporate profits, and Biden’s low poll numbers.

While Yellen has no plans and is not under pressure to retire, talks about who might replace her have spread across the administration in recent months, with Commerce Secretary Gina Raimondo and former White House COVID-19 coordinator Jeff Zients at the top of the list of possible successors.


On Hill, Yellen plans to repeat the White House mantra that inflation is “the administration’s top priority,” a Treasury official said, and that “the unparalleled strength of the US recovery allows our country to address global challenges like inflation.” and Russia’s attack on Ukraine”. from a position of strength.”

But a forthcoming biography indicates that she, too, had concerns that Biden’s $1.9 trillion American Rescue Plan, passed by Congress a month after he took office, would raise prices.

Ultimately, Yellen “was comfortable” with the size of the relief program, aware of the Obama administration’s failure to pass a stimulus package big enough to weather the Great Recession and confident that the Federal Reserve would respond if inflation rose, according to excerpts from Owen Ullmann’s book “Empathy Economics”, which will be released in September.

Yellen said on Saturday that he never pushed for a smaller stimulus package, as suggested in the book, and that the overall package helped fuel the strong US recovery.

With limited options to substantially impact gas and food prices, the White House has embarked on a national roadshow to convince voters that the Biden administration’s handling of the US economy has been positive. Biden’s approval ratings have been below 50% since August, raising alarms that his Democratic Party could lose control of at least one chamber of Congress in the Nov.

Yellen was joined by central bankers and independent economists who shared their relatively optimistic views of inflation, ignoring warnings from shrill voices, including former Treasury Secretary Larry Summers about a possibly overheating economy.

Administration officials concede that Yellen’s frank admission during a May 31 television interview that she did not foresee the inflation path was politically reckless, but say the Treasury secretary remains one of the most revered economic voices close to Biden.

Yellen created a minor uproar during a meeting of Group of Seven finance ministers in Germany last month when she invoked the word “stagflation,” a term associated with 1970s inflation spikes and sluggish growth.

She should choose her words more carefully at the Hill this week, say some analysts.

“She was chairman of the Fed and in that position you watch every word she says,” said Harry Broadman, former chief of staff at the White House Council of Economic Advisers and managing director of the Berkeley Research Group.

(Reporting by Andrea Shalal, Trevor Hunnicutt and David Lawder; Editing by Heather Timmons and Andrea Ricci)

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