Janet Yellen told Congress that the US is facing “unacceptable levels of inflation” on Tuesday as the treasury secretary defended herself from criticism of her previous comments that rising prices were “transitory”.
Although the hearing with the Senate finance committee was centered on Joe Biden’s budget for 2023, Yellen was forced to answer questions on inflation, including some on how she once said that inflation would be “transitory”, or temporary.
In response to a question about how she had initially framed inflation, Yellen said: “When I said that inflation would be transitory, what I was not anticipating was a scenario in which we would end up contending with multiple variants of Covid that would be scrambling our economy and global supply chains.
“I was not envisioning impacts on food and energy prices we’ve seen from Russia’s invasion of Ukraine.”
Yellen said she and the Federal Reserve chair, Jerome Powell, “could have used a better term than transitory”.
She said: “There’s no question that we have huge inflation pressures, that inflation is really our top economic problem at this point and that it’s critical that we address it. I do expect inflation to remain high, although I very much hope that it will be coming down now.”
Last week, Yellen drew headlines for making similar comments to CNN, during an interview in which she had been “wrong then about the path inflation would take”.
At the hearing on Tuesday, Yellen said: “We currently face macroeconomic challenges, including unacceptable levels of inflation, as well as the headwinds associated with the disruptions caused by the pandemic’s effect on supply chain and the effects of supply-side disturbances to oil and food market.”
The Biden administration has been delicately walking the inflation tightrope over the last few months as they try to push an aggressive response while also emphasizing other indicators that prove the economy is still improving, particularly in the jobs market.
Biden celebrated the figures shown in May’s jobs report, released last Friday, which showed that 390,000 new jobs were created that month.
“Because of the enormous progress we’ve made on the economy, Americans can tackle inflation from a position of strength,” Biden said in remarks following the release of the jobs report.
Republicans in Tuesday’s hearing repeatedly pointed to the passing of the $1.9bn American Rescue Plan, which was passed in March last year and delivered further coronavirus aid, as a key driver of inflation.
In response, Yellen noted that Biden “inherited an economy with very high unemployment”.
“We had to address the possibility that this could be the downturn that could match the Great Recession,” she said. “In the policy, there were various risks taken into account. Of course, inflation was one of them. But the overwhelming risk was that America would be marred by a deep and long recession.”
Yellen pointed to the expansion of child tax credit, which gave extra assistance to families, in the stimulus package that “resulted in a dramatic reduction in childhood poverty and financial insecurity for American families and contributed little to nothing to inflation”.
She also said the US is “not the only country that’s experiencing inflation – you can see that in virtually every developed country around the world”.