Treasury Secretary Janet Yellen said the inflation is at “unacceptable levels” but expected it to remain high.
“I do expect inflation to remain high, although I very much hope it will be coming down now,” she told the lawmakers during a hearing on Tuesday before the Senate Finance Committee.
However, Yellen denied that the $1.9 trillion American Rescue Plan (ARP) played a critical role in causing the soaring prices.
“We are seeing high inflation in almost all developed countries around the world,” she said in response to a question by Sen. Steve Daines (R-Mont.). “They have very different fiscal policies. So it can’t be the case that the bulk of the inflation that we are experiencing reflects the impact of the ARP.”
At the time when the Biden administration was pressing Congress to pass the ARP, economists warned that a combination of supply chain issues and excessive government spending would cause inflation.
“Compounding the pressures of constrained supply, increases in household income from government stimulus measures may have ignited more lasting demand-driven inflation. If Congress continues to enact new government spending that further increases consumer demand while supply remains constrained, inflation could become worse,” Senior Economist Jackie Benson at the United States Congress Joint Economic Committee wrote in a report in October 2021.
Yellen—who served as the chair of the Federal Reserve from 2014 to 2018 and was a supporter of low interest rates and expansionary monetary policies—insisted for months that the inflation was “transitory” before admitting she was wrong.
“I think I was wrong then about the path that inflation would take,” Yellen said in the May 31 interview with CNN.
“As I mentioned, there have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn’t—at the time, didn’t fully understand, but we recognize that now,” she added.
The U.S. annual inflation rate slowed marginally to 8.3 percent in April from its March peak of 8.5 percent but remains near a 40-year high.
In some industries or goods, prices increased much more from the same time a year ago than the broad-based consumer price index (CPI) did.
Food prices surged 9.4 percent, while energy prices jumped 30.3 percent. New vehicles went up 13.2 percent, while used cars and trucks went up 22.7 percent. Shelter costs, which account for almost one-third of the CPI, increased 5.1 percent—the fastest pace since May 1991.
