Yellen: COVID Stimulus Packages May Have Contributed ‘A Little Bit’ to Inflation

U.S. Treasury Secretary Janet Yellen speaks during a visit to the Financial Crimes Enforcement Network (FinCEN) in Vienna, Va., on Jan. 8, 2024. Susan Walsh/AP Photo

Outgoing Treasury Secretary Janet Yellen conceded that COVID-19 stimulus packages could have contributed somewhat to persistent U.S. inflation.

The COVID-19 fiscal stimulus packages may have contributed “little bit to the inflation” but said that the main driving force was supply chain issues, she told CNBC on Wednesday morning.

In the United States, there were “simply huge supply chain problems” due to COVID-19, Yellen said.

She said critical good shortages “started pushing up prices a great deal.”

The $1.9 trillion COVID-19 relief bill, known as the 2021 American Rescue Plan, and other government spending measures were needed, she said. Yellen also did not answer whether she has any regrets about the extra fiscal stimulus and government spending.

Yellen called on Americans to recall that COVID-19 pandemic in 2020 and 2021 was “raging out of control” and that data pointed to “thousands of people dying on a monthly basis” amid high unemployment.

A number of people also lost their jobs and unemployment was high, she noted, amid COVID-19 mandates and lockdowns. “It was really important to spend the money to alleviate that suffering,” she said.

However, economists at the St. Louis Federal Reserve said in a 2023 report that fiscal stimulus packages including the American Rescue Plan and CARES Act, which was passed under the first Trump administration, played a “sizable role” in inflation. Both packages provided stimulus checks to Americans.

“We find that excess inflation is significantly correlated to each country’s own domestic stimulus and to various exposures of foreign stimulus,” they wrote, adding that within the United States, “fiscal stimulus during the pandemic contributed to an increase in inflation of about 2.6 percentage points.”

Last month, data released by the Bureau of Labor Statistics show that consumer prices increased in November 2024 by the most in seven months. The consumer price index rose 0.3 percent last month, the largest gain since April after advancing 0.2 percent for four straight months, it said. The consumer price index for December is slated to be released later in January.

The annual increase in the consumer price index has slowed from its peak of 9.1 percent in June 2022 as the Federal Reserve initiated a series of interest rate hikes in a bid to slow inflation. In September 2024, the Fed stated its monetary policy easing cycle, and the benchmark overnight interest rate is now in the 4.50 to 4.75 percent range after it was increased to around 5.25 percentage points.

Separately, Yellen added in the interview the labor market had cooled but was in a good state, and recent U.S. economic data suggested that interest rates could remain higher than people had expected.

Yellen, 78, who led the Treasury throughout Biden’s four-year term, is scheduled to be replaced by Scott Bessent, President-elect Donald Trump’s pick to lead the agency.

Bessent’s extensive experience on Wall Street would be “a very helpful background” for a candidate to take control of the Treasury, Yellen told CNBC.  “I’m pleased to see somebody with experience who will be will be taking over, presumably, if confirmed by the Senate,” Yellen said.

Reuters contributed to this report.