Stubborn Inflation Drags Sec. Yellen To Spotlight

The US Treasury secretary’s latest remarks about surging prices put the Biden administration in a defensive stance. At her previous hearing in 2021, Treasury Sec. Janet Yellen told the congress that it was time to “act big” on a pandemic relief package, in her attempt to downplay the then prevalent concerns about deficits at a time of continually low interest rates and warning that inaction would mean widespread economic “scarring.”

After about eighteen months, prices are continuing to soar and interest rates are heading higher. As a result, Yellen is involved in crafting and selling the $1.9 trillion American Rescue Plan, which the Congress passed in March 2021, she is also busy with another role in an endeavour to determine who is blame for the highest rates of inflation in 41 years.

“I think I was wrong then about the path that inflation would take,” Ms. Yellen said in an interview with CNN, adding that the economy had faced unanticipated “shocks” that boosted food and energy prices.

Republicans delightedly seized upon the statements by Yellen as evidence that Biden’s administration had mismanaged the US economy and could no longer be trusted to remain in political control. The Treasury Department tried to clarify Yellen’s remarks, saying her acknowledgment that she misread inflation simply means that she could not have anticipated developments such as the war in Ukraine, new variants of the coronavirus or lockdowns in China, etc..

At this tenuous moment in her mission, Yellen is expected to face tough questions on inflation when she testifies before the Senate Finance Committee on Tuesday and the House Ways and Means Committee on Wednesday.

This couple of hearings will be about the president’s budget request for the 2023 fiscal year, but Republicans are expected to seize the opportunity to blame Biden’s policies, including the $1.9 trillion stimulus package, for high prices for consumer products, and Ms. Yellen’s comments have given them grist to cast his first term as a failure.

Yellen said in her opening statement on Tuesday that the Biden administration is working hard to address inflation. “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 chains, and the effects of supply side disturbances to oil and food markets resulting from Russia’s war in Ukraine,” Yellen said, according to her prepared remarks.

She pointed to Mr. Biden’s proposed clean energy initiatives and plans to reform the prescription drug market as measures that could lower costs for Americans.

In recent weeks, Yellen has had to defend the Biden administration’s economic policies even as fault lines have emerged within the economic team. She has expressed reservations about the lack of progress in rolling back some of the Trump administration’s China tariffs, which she views as taxes on consumers that were “not strategic,” and she has been reluctant to support student debt forgiveness proposals, 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 a forthcoming biography of her indicated that she had sought unsuccessfully to pare down the pandemic aid bill because of inflation concerns. The Treasury Department released a rare Saturday statement from Ms. Yellen denying that she argued that the package was too big.

“I never urged adoption of a smaller American Rescue Plan package,” she said, insisting that the funds have helped the United States economy weather the pandemic and the fallout from Russia’s war in Ukraine.