WASHINGTON (AP) – Treasury Secretary Janet Yellen acknowledged on Tuesday that she and Federal Reserve Chair Jerome Powell “could have used a better word” than “transient” in describing expected inflation in US economy. She added that she was hopeful that it would soon be on the decline.
“I expect inflation to remain high, although I have high hopes that it is now falling,” Yellen told the Senate Finance Committee during a hearing on the agency’s latest budget request. “I think reducing inflation should be our number one priority.”
The Federal Reserve and the Treasury Department have been increasingly blamed by lawmakers and the public for allowing inflation to hit record levels — notably an 8.3% jump in consumer prices last year.
She told CNN last week that she didn’t fully understand the impact that major unforeseen shocks and supply bottlenecks would have on the economy.
“Look, I think I was wrong about the path inflation would take,” she said.
The hearing was an opportunity for lawmakers to put pressure on Yellen about the causes of inflation, when it might fall, and the administration’s plans to reduce Americans’ pain.
“We are now entering a transition period from a historic recovery to one that can be marked by steady, steady growth,” she said. “Making this change is a centerpiece of the president’s plan to control inflation without sacrificing the economic gains we’ve made.”
As for Yellen and Powell’s earlier pronouncements that the US inflation problem was transitory, Yellen admitted: “We both could have used a better word than transitory. There is no doubt that we have enormous inflationary pressures. Inflation is really our main economic problem right now.”
Inflation has shown signs of moderating, but is likely to remain well above the Fed’s 2% target through the end of this year.
The Congressional Budget Office released an economic outlook this month saying high inflation will persist into the next year, likely causing the federal government to pay higher interest rates on its debt.
The non-partisan agency expects the consumer price index to rise 6.1% this year and 3.1% in 2023. This forecast suggests that inflation will decline from current annual levels of 8.3%, but would still be dramatically above the line. long-term base rate of 2.3%. .
Yellen was asked about her support for last year’s American Rescue Plan aid package, also known as the ARP, which has been criticized by some economists who say the $1.9 trillion program has worsened price spikes.
Since inflation is high globally, Yellen said, “it cannot be the case” that ARP is the big culprit for most US inflation.
Over the weekend, Yellen was forced to defend her support for the ARP after Bloomberg wrote about an excerpt from an upcoming biography about the secretary that said she privately agreed with former Treasury Secretary Larry Summers “that a lot of government money was flowing into the economy very quickly. That’s why she unsuccessfully tried to reduce the $1.9 trillion relief plan by a third in early 2021, before Congress passed the massive program.”
Yellen said in a statement on Saturday that “I never asked for the adoption of a smaller package of the American Rescue Plan and I believe that the ARP played a central role in driving strong growth through 2021 and beyond, with real GDP growth of the United States outperforming other advanced economies. and our job market recovering faster relative to historical experience.”
Yellen said during the hearing that Congress should also play a role in lowering prices by enacting legislation that raises taxes on wealthy individuals — and passing the language to a global tax deal that stalled Congress, previously included in the now dead Rebuild Best plan.
The global tax agreement is designed to subject large multinational companies to a 15% tax rate wherever they operate. It also provides for taxation of part of the profits of the largest global companies in countries where they do business online but may not have a physical presence.
“As the prospects for recession and stagflation rise, this is not the time to consider raising taxes or resurrecting reckless spending from the House-passed Build Back Better plan,” said Republican Senator Mike Crapo.