4 unhealthy aspects of the current US economy, according to Janet Yellen

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  • Treasury Secretary Janet Yellen discussed “destructive forces” in the economy in Senate Finance testimony.
  • They include wage inequality, racial inequality, the climate crisis, and the labor force participation rate.
  • All of those factors existed before the pandemic, but many have been exacerbated.
  • See more stories on Insider’s business page.

The coronavirus pandemic has thrown into relief some of the hidden realities of the American economy, from low wages to income inequality.

But in testimony in front of the Senate Finance committee, Treasury Secretary Janet Yellen highlighted four structural problems that plagued the economy even prior to the pandemic – although they may have intensified or grown more visible throughout the past year.

She cited wage inequality as a prime example. “In healthy economies,” she said, we see wage growth across the distribution – for workers making the highest incomes and those making the lowest. But over the past several decades, that has not been the case in our economy.”

Here are the four “destructive forces” that Yellen highlighted in her prepared testimony.

(1) Wage inequality

Wages have been trending down for years prior to the pandemic. As Insider’s Andy Kiersz and Ben Winck reported, wages have been declining for the past five decades. While recent economic data shows wages growing at the fastest rate since the 1980s, the lowest-wage workers still see average hourly wages that are nearly half of the overall average hourly wage. That might be driving a high quit rate.

“While the highest earners have seen their income grow, families at the bottom end of the distribution have seen their pay stagnate,” Yellen said. she also noted that disparities have widened between traditionally richer and poorer areas.

(2) People dropping out of the labor force, especially women

Yellen also noted that labor-force participation has dropped, with women leaving at a higher rate than comparable nations even before the pandemic.

From February 2020 to May 2021, the number of women in the labor force declined by 2.4% – meaning there were 1.79 million fewer women.

Following the May jobs report, Jasmine Tucker, the director of research at the National Women’s Law Center, told Insider it will take 13 months for women’s employment to reach pre-pandemic levels. That number doesn’t include the never-realized gains women would have seen in a pandemic-free world.

(3) Climate change and its cost on the economy

“Climate change adds a fresh layer of crisis on top of this – the average cost of climate-related disasters is expected to double every five years,” Yellen said in her prepared testimony.

Investors have said that the climate crisis is a “systemic threat” for the economy. In 2019, a New York Fed official said that climate events had cost over $500 billion in the past five years alone. Some Democratic senators have said that they’d oppose any bipartisan infrastructure deal that foregoes addressing the climate crisis.

(4) Racial inequality

“When I started studying economics in 1963, the average Black family’s wealth was about 15% of the average white family,” Yellen said in her prepared remarks. “Maybe that isn’t surprising: Jim Crow laws were still in effect. But what is surprising is that it’s almost 60 years later, and that ratio has barely changed.”

Throughout the pandemic, Black Americans were disproportionately impacted on multiple levels. Black Americans saw higher unemployment rates than white peers, and lower labor force participation rates.

The racial wealth gap has also widened over the years – even before the pandemic. Using data from the 2019 Survey of Consumer Finances, the Federal Reserve found that white families had a median wealth of $188,200. For Black families, it’s $24,100.

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US senators urge stricter crypto regulation after a flood of ransomware attacks

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Sen. Mark Warner (D-VA) on January 30, 2020 and Sen. Roy Blunt (R-MO) on February 3, 2020 both in taken in Washington, DC.

Two US senators called for stricter cryptocurrency regulation after a flood of ransomware attacks that plagued the country in the past months.

Democratic Senator Mark Warner of Virginia, chair of the Senate Intelligence Committee, told NBC Meet the Press on Sunday that regulators need to scrutinize the cryptocurrency loopholes that help criminals carry 0ut cyberattacks.

“There was some good things coming out of distributed ledger technology, but we are seeing now some of the dark underbelly,” Warner said. “If a company is paying, if there’s not some transparency of that payment, the bad guys will simply find another way to hide it.”

The senator said while there has been some progress when it comes to bipartisan legislation, the debate about cryptocurrencies and ransomware is “just starting.”

In May, the Colonial Pipeline paid DarkSide Ransomware a $5 million ransom to restore services, Bloomberg reported. The transaction was said to be untraceable.

The following month, JBS, the largest meat supplier in the US, revealed it was hit by a cyberattack that affected some of its systems. Whether there was a payment of ransom or not remains unclear.

Republican Senator Roy Blunt of Missouri, also a member of the Intelligence Committee, said regulators need to demand more transparency when it comes to attacks like these to protect the American financial system.

“Nobody wanted to report that they had been hacked. That was a fight we’ve been having now for almost a decade,” he told NBC Meet the Press. But “the only way you can begin to get on top of this is to know how pervasive the problem is.”

He continued: “We have a lot of cash requirements in our country, but we haven’t figured out in the country or in the world how to trace cryptocurrency.”

“There ought to be more transparency if a company does pay, so we can go after the bad guys,” Warner said. “Right now what’s happening around ransomware, not only are the companies often not reporting that they are attacked, but they’re not reporting the ransomware payments.”

The Biden administration is reportedly looking at how to increase oversight of the cryptocurrency market to protect retail investors, sources told The Washington Post. The administration is also analyzing potential gaps that may be used to finance illicit activities, sources said.

US Treasury secretary Janet Yellen has been critical of cryptocurrencies in the past, calling out their misuse, which she described in February as “a growing problem.”

“I see the promise of these new technologies,” the former Federal Reserve chief said. “But I also see the reality: cryptocurrencies have been used to launder the profits of online drug traffickers; they’ve been a tool to finance terrorism.”

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G7 leaders reach ‘historic’ agreement to crack down on tech giants by forcing Amazon, Facebook, and others to pay more tax

G7 Finance Ministers
G7 finance ministers meet in London on June 5, 2021.

  • The G7 group of wealthy nations has reached a “historic agreement” on taxing multinational companies.
  • The agreement will ensure that tech giants pay more tax where they operate.
  • It also pledges to introduce a global minimum corporate tax rate of 15 percent.
  • See more stories on Insider’s business page.

Finance ministers for some of the world’s wealthiest nations have reached a “historic agreement” to tackle tax abuses by internet giants and to introduce a global minimum corporate tax rate of 15 percent.

“I am delighted to announce that today after years of discussion G7 finance ministers have reached a historic agreement to reform the global tax system,” Rishi Sunak, the UK’s Chancellor of the Exchequer, said after a Group of Seven (G7) meeting in London.

“To make it fit for the global digital age, but crucially to make sure that it is fair so that the right companies pay the right tax in the right places and that’s a huge prize for British taxpayers,” Sunak added.

Read more: The director of wealth management at a $12 billion firm shares 3 stocks set to thrive when corporate taxes rise – and says all of them have at least 15% upside from current levels

The deal – agreed on by Canada, France, Germany, Italy, Japan, the UK, and the US – will ensure that multinationals pay more tax where they operate, the Financial Times said. This is to avoid companies setting up local branches in countries with low corporate tax rates and then declaring their profits there, the BBC reported.

The “first pillar” of the agreement would apply to global companies with at least a 10 percent profit margin, the BBC said. A 20 percent tax on any profit above that margin would be reallocated and taxed in the countries where they make sales, Sunak said on Twitter.

It is likely to affect tech giants, including Amazon, Facebook, and Google, Metro reported.

The “second pillar” is a commitment to introducing a global minimum corporate tax rate of 15 percent. This will disincentivize major companies from declaring profits in tax havens, the Financial Times said. It will also stop countries from trying to undercut each other.

The latter is seen as a big win for the Biden administration. President Joe Biden’s infrastructure plans include a hike in the country’s corporate tax rate, Insider’s Juliana Kaplan reported. If rates are more uniform around the world, as this commitment pledges, it could encourage multinational companies to remain in the US, even with higher taxes, Kaplan said.

Secretary of the Treasury Janey Yellen said on Twitter that the global minimum tax will “end the race-to-the-bottom in corporate taxation” and would “level the playing field” for business.

The “Silicon Six”– Microsoft, Amazon, Facebook, the Google owner Alphabet, Netflix, and Apple – have long been accused of avoiding paying tens of billions less tax over the past decade on trillions of dollars of revenue than the figures cited in annual financial reports would seem to entail, according to the Guardian.

Nick Clegg, Facebook Vice President for Global Affairs, told Insider via email: “Facebook has long called for reform of the global tax rules and we welcome the important progress made at the G7. Today’s agreement is a significant first step towards certainty for businesses and strengthening public confidence in the global tax system. We want the international tax reform process to succeed and recognize this could mean Facebook paying more tax, and in different places.”

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A key US watchdog wants officials to set up a ‘regulatory perimeter’ for cryptocurrencies

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Critics have long highlighted bitcoin’s use in crime.

  • A US banking regulator said he would like to see a “regulatory perimeter” for cryptocurrencies.
  • Michael Hsu told the Financial Times that there was growing interest in regulating crypto.
  • US and global officials have expressed concerns that retail investors could get burned by bitcoin.
  • See more stories on Insider’s business page.

The US’ Comptroller of the Currency has said he hopes officials will set up a “regulatory perimeter” for cryptocurrencies.

Michael Hsu, who oversees the country’s national banks, told the Financial Times that agencies overseeing the US financial system want to coordinate “a lot more” on the $1.5 trillion cryptocurrency market, which has boomed in 2021 but crashed sharply two weeks ago.

The comments were one of the clearest signs yet that US regulators plan to take a more active role in the cryptocurrency market.

“It really comes down to coordinating across the agencies,” Hsu said. “Just in talking to some of my peers, there is interest in coordinating a lot more of these things.”

Officials around the world worry that the crypto boom is sucking in amateur traders who could get badly burned. Bank of England governor Andrew Bailey said earlier in May that people should “buy them only if you’re prepared to lose all your money.”

In the US, there are growing signs that President Joe Biden’s administration wants to take a more hands-on approach than Donald Trump’s White House.

Biden’s Treasury Secretary Janet Yellen said in February that “the misuse of cryptocurrencies and virtual assets is a growing problem.” She highlighted their use in money laundering, terrorism and drug trafficking.

Hsu, who was appointed as Acting Comptroller by Yellen, said innovation in finance through technologies like blockchain and the rise of fintech companies reminded him of the financial crisis. He said new technologies brought great promise, but also great risk.

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Stronger inflation will linger throughout 2021 and fade soon after, Treasury Secretary Yellen says

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Federal Reserve Chair Janet Yellen speaks during a news conference following the Federal Open Market Committee meeting in Washington, Wednesday, Dec. 13, 2017

  • Inflation will stay elevated through 2021 but fade to healthier levels after, Tres. Sec. Janet Yellen said.
  • The jump in price growth “is temporary” and “not something that’s endemic,” she added.
  • Yellen supported spending on infrastructure, noting historically low rates ease debt concerns.
  • See more stories on Insider’s business page.

Historically strong price growth will be with the country into 2022, but Americans still need not worry, Treasury Secretary Janet Yellen said Thursday.

The US economy is in the midst of an inflation conundrum. The relaxing of economic restrictions and stimulus passed by Democrats in March have supercharged the recovery. Yet the resulting bounce in demand and a slew of supply bottlenecks have driven inflation to its highest levels in more than a decade.

The Federal Reserve and the Biden administration have maintained their forecast that, as supply chains heal and the economy settles into a new normal, inflation will fade to healthier levels.

Yellen reiterated the White House’s outlook in a hearing with a House Appropriations subcommittee.

“My judgment right now is the recent inflation we’ve seen is temporary. It’s not something that’s endemic,” the Treasury Secretary told lawmakers during the virtual hearing. “I expect it to last, however, for several more months and to see high annual rates of inflation through the end of this year.”

Republicans, however, have recently gone on the offensive. Members of the party this week pinned accelerated price growth to President Joe Biden’s spending plans and raising concerns around economic overheating.

The Consumer Price Index – a popular measure of broad inflation – surged 0.8% in April from the month prior, the Census Bureau said earlier this month. The index also notched a 4.2% year-over-year gain, the largest since September 2008. The April uptick was primarily fueled by a 10% month-over-month gain for used car prices.

To be sure, year-over-year measures are somewhat skewed by year-ago readings. Inflation turned negative at the start of the pandemic and remained historically weak for months after. Those levels serve as a lower bar to clear for present-day readings.

Yellen also rebuked Republicans’ argument that Biden’s follow-up spending proposals will further accelerate inflation. Historically low interest rates mean the government can spend now with little immediate pressure to repay its debt, the former Fed chair said. The US will need to reach a sustainable path for spending after the recovery, but debt concerns shouldn’t keep the government from spending on infrastructure and other investments, she added.

Americans will get their next glimpse at nationwide inflation when the government publishes Personal Consumption Expenditures data Friday morning. Economists surveyed by Bloomberg expect core PCE to jump 0.6% month-over-month in April.

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The Biden administration is reportedly looking at how to increase oversight of crypto to protect retail investors and prevent illegal activity

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  • The Biden administration is looking into increasing oversight of cryptocurrencies, sources told The Washington Post.
  • The administration is also analyzing potential gaps that may be used to finance illicit activities, sources said.
  • Not looped in, however, were principal-level officials, including Treasury Secretary Janet Yellen, The Post said.
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The Biden administration is reportedly looking at how to increase oversight of the cryptocurrency market to protect retail investors, sources told The Washington Post Tuesday. The administration is also analyzing potential gaps that may be used to finance illicit activities, sources said.

Earlier this month, White House officials and Treasury department staff were in discussion about the risks that the rapidly evolving digital space could bring, according to The Washington Post. Not looped in, however, were higher-ups, including Treasury Secretary Janet Yellen, The Post said.

Yellen has been critical of cryptocurrencies in the past, calling out “misuse” of cryptocurrencies, which she described in February as “a growing problem.”

“I see the promise of these new technologies,” the former Federal Reserve chief said. “But I also see the reality: cryptocurrencies have been used to launder the profits of online drug traffickers; they’ve been a tool to finance terrorism.”

The cryptocurrency market crashed last week, wiping out 47% of the market cap for global digital currencies after a seven-day sell-off.

Nevertheless, federal regulators don’t think the extreme price fluctuations are threatening the stability of financial markets, sources told The Washington Post.

“They’re aware of the fact that there are all kinds of risks in the abstract and things to look out for, but they are still largely in a wait-and-see posture,” a source said.

Administration officials did discuss how to let investors to “dogecoin to their heart’s content,” while regulating the market, sources told The Post.

Dogecoin, the meme currency that started as a joke in 2013, is now up more than 7,000% year-to-date according to CoinDesk due in large part to the public hype fueled by figures like Elon Musk.

In April, the House of Representatives passed the Eliminate Barriers to Innovation Act of 2021, a bill that aims to bring the Securities and Exchange Commission and Commodities Futures Trading Commission together for work on digital asset rules.

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The US Treasury wants every crypto transfer larger than $10,000 to be reported to the IRS

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  • The US Treasury said a proposal to beef up the IRS includes reporting any transfers of at least $10,000 in cryptocurrencies for tax purposes.
  • “As with cash transactions, businesses that receive crypto assets with a fair-market value of more than $10,000 would also be reported on,” The Treasury Department said.
  • Bitcoin sold off by as much as 6% on Thursday following the announcement.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The Treasury Department detailed plans to have any cryptocurrency transfers of at least $10,000 to be reported to the Internal Revenue Service in a report on Thursday.

Bitcoin pared its gains and fell by as much as 6% in afternoon trading following the release of the report, adding to the cryptocurrency’s volatile week of trading in which it fell more than 30% in a day.

“As with cash transactions, businesses that receive cryptoassets with a fair-market value of more than $10,000 would also be reported on,” the Treasury Department said in the report. The report is part of the Biden administration’s plans to beef up the IRS in hopes of collecting more tax revenue that otherwise goes unreported.

The IRS first began asking individuals if they ever bought or sold virtual currencies in 2020, and now requires individuals to report capital gains realized from any cryptocurrency transactions.

The Treasury Department said that reporting the crypto transactions is necessary “to minimize the incentives and opportunity to shift income out of the new information reporting regime,” according to the report.

“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the Treasury added in its report.

The move by the Treasury Department comes after the Colonial gas pipeline was briefly shutdown due to a ransomware threat, in which the company ultimately paid the hackers $5 million in bitcoin. Those same hackers have collected a total of $90 million in bitcoin by running a similar ransomware scheme against other companies.

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Treasury Secretary Janet Yellen says Americans can expect a ‘big return’ from Biden’s $4.1 trillion spending proposal

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Treasury secretary Janet Yellen pushed for stimulus checks

  • President Biden’s spending plans can offer a “big return,” Tres. Sec. Janet Yellen said Sunday.
  • The measures should be paid for while interest rates sit at historic lows, she added.
  • If inflation rises more than expected, the government “has the tools to address it,” Yellen said.
  • See more stories on Insider’s business page.

Treasury Secretary Janet Yellen reiterated her support for President Joe Biden’s spending plans on Sunday, pitching the measures as strong investments in the country’s future.

The president on Wednesday rolled out a $1.8 trillion spending proposal that includes funding for paid family and medical leave, universal pre-K, and childcare. The measure follows the March passage of Biden’s $1.9 trillion stimulus package and joins the president’s $2.3 trillion infrastructure plan as his latest step in big-government economic policy.

Republicans and some moderate Democrats have balked at the follow-up plans cost, saying the measures would dangerously inflate the government’s debt pile. Yellen countered on NBC’s “Meet The Press,” saying it’s a better time than ever to spend on such projects.

“We’re in a good fiscal position. Interest rates are historically low… and it’s likely they’ll stay that way into the future,” the Treasury Secretary said. “I believe that we should pay for these historic investments. There will be a big return.”

That’s not to say the government shouldn’t offset the multitrillion-dollar price tag. The Biden administration rolled out a handful of tax hikes and stronger enforcement to cover the spending, but those proposals were swiftly rejected by Republicans. The GOP has criticized Biden’s public-works plan and a proposed corporate tax increase, calling it a “slush-fund” and a “Trojan horse” for Democratic priorities.

The economy is poised to rebound from the coronavirus pandemic throughout 2021 and, in turn, bring in greater tax revenues. That stronger growth justifies some spending, but the safest and most sustainable way to spend on infrastructure and care involves equitable tax increases, Yellen said.

Stricter tax compliance would also play a critical role. The country is currently estimated to lose $7 trillion through tax underpayment over the next decade. Stepping up compliance efforts and adequately funding the IRS can also boost tax collection, Yellen added.

The Treasury Secretary also rebuffed concerns of the massive spending fueling a sharp rise in inflation.

Administration officials and the Federal Reserve already anticipates the latest stimulus and economic reopening to drive a sharp but temporary bout of stronger inflation. While Biden’s latest proposals are far larger than the March stimulus, plans to spend them over eight to 10 years cuts down on the risk of rampant inflation, Yellen said.

“I don’t believe that inflation will be an issue, but if it becomes an issue, we have tools to address it,” she added. “These are historic investments that we need to make our economy productive and fair.”

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Biden will create a task force to support strengthening unions and their membership

Biden
President Joe Biden.

  • President Joe Biden is creating a task force to strengthen unions and their membership.
  • The task force will look into existing and new policies to strengthen worker power.
  • The rate of unionization has fallen in the past 40 years, and Amazon workers recently led a failed union drive.
  • See more stories on Insider’s business page.

President Joe Biden is creating a task force to help promote and strengthen union membership through an executive order today.

According to the White House, the task force – which will be chaired by Vice President Kamala Harris, with Labor Secretary Marty Walsh serving as vice chair – will focus on helping to bolster union membership and worker organizing and bargaining.

The task force will examine both existing policies and the need for new ones, and report back recommendations within 180 days. The group will also include Treasury Secretary Janet Yellen, Transportation Secretary Pete Buttigieg, and Interior Secretary Deb Haaland.

“Since 1935, when the National Labor Relations Act was enacted, the policy of the federal government has been to encourage worker organizing and collective bargaining, not to merely allow or tolerate them,” the White House release said. “In the 86 years since the Act was passed, the federal government has never fully implemented this policy.”

The main focuses of the task force include setting up the federal government as a “model employer,” helping to bolster worker organizing – especially by increasing power for marginalized workers, and those in industries where organizing is difficult – as well as generally upping the number of workers in unions.

Union membership has fallen

A report from the Economic Policy Institute (EPI), a left-leaning think tank, found that the number of workers who are represented by a union declined by 444,000 from 2019 to 2020.

However, the rate of unionization – the share of workers represented by one – actually increased in 2020, to 12.1% from 11.6%. The report attributes that to the power that unions give their workers, potentially resulting in those unionized workers having more of a say in how their workplaces functioned during the pandemic and its economic impact. And industries that are less unionized – the report cites leisure and hospitality – also saw the most job losses.

On the whole, according to EPI, the unionization rate is highest for Black workers, coming in at 13.9%. Throughout the pandemic, both that rate and the number of Black workers represented by a union increased.

Data from the Bureau of Labor Statistics also found that “Nonunion workers had median weekly earnings that were 84 percent of earnings for workers who were union members ($958 versus $1,144).”

However, in a historical context, unionization rates are still very low. EPI said 2020’s rate is still below half of what it was 40 years ago. Amazon workers had a recent high-profile union loss, as workers in a Bessemer, Alabama warehouse voted against forming a union. That unit would’ve been the first union for the company.

“Amazon didn’t win – our employees made the choice to vote against joining a union,” the company said in a statement after the vote, over which the Retail, Wholesale and Department Store Union (RWDSU) has filed official objections.

But with Biden’s task force, union membership could see a boost. The president has also backed a labor-rights bill called the PRO Act.

“As America works to recover from the devastating challenges of deadly pandemic, an economic crisis, and reckoning on race that reveals deep disparities, we need to summon a new wave of worker power to create an economy that works for everyone,” Biden said in a March statement on the bill.

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The Biden administration reportedly spent months preparing for an inflation spike that hasn’t come yet – and it’s still worried

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President Joe Biden meets with Treasury Secretary Janet Yellen in the Oval Office at the White House in Washington, U.S., January 29, 2021.

  • White House and Treasury officials spent months testing inflation scenarios, the NYT reports.
  • No scenario showed inflation rising so quickly that the Fed would lose control of price growth.
  • The findings open the door for Biden to spend trillions more on infrastructure and social care.
  • See more stories on Insider’s business page.

The Biden administration spent much of its first days in office testing how further stimulus might drive inflation higher. No modeled scenario saw price growth surge out of control, The New York Times reported on Wednesday.

Still, the report said repeatedly that White House and Treasury officials are “worried” about the issue.

The inflation debate has loomed large over the White House since before President Joe Biden was even inaugurated. The president unveiled a $1.9 trillion relief proposal in January, pitching the plan as an additional boost for the US economic recovery. Largely Democrat-affiliated economists have fiercely debated the inflation risks of such large deficit-financed spending, led by former Obama- and Clinton-administration official Larry Summers.

Democrats largely backed the measure, saying the risks of retracting government support were greater than the risks of spending too much. But Republicans – and even some moderate Democrats – balked at the hefty price tag and cited fears that another set of stimulus checks could spark a dangerous surge in inflation.

“This is the least responsible fiscal macroeconomic policy we’ve had for the last 40 years,” Summers said in a March interview with Bloomberg TV, adding the measures are a product of “intransigence” among Democrats and “irresponsible behavior” among Republicans.

Democrats went ahead without any Republican votes, passing the bill via reconciliation, and Biden signed it into law on March 11. Still, the stimulus push wasn’t without some trepidation. A handful of officials in the Treasury Department spent several months modeling how Americans would deploy new fiscal support, and whether any outcome could lead to stifling inflation, according to The Times. Treasury Secretary and former Federal Reserve Chair Janet Yellen even helped create the models.

Their observations were encouraging and lend new support to Biden’s latest spending proposal. The team tested a range of potentialities for how quickly Americans would spend stimulus, where they would deploy cash, and how the labor market’s recovery would affect inflation. Yet no outcome saw inflation charge out of the Fed’s control and risk a new recession, the Times reported.

The findings have been hinted at in statements from the White House and the Treasury in recent weeks. Long-term scarring in the labor market poses a greater risk than inflation, Yellen told ABC’s “This Week” in March. Economic reopening is expected to drive a jump in prices, but the effects will likely be temporary and fail to drive sustained inflation, she added.

The administration’s Council of Economic Advisors mirrored Yellen in a Monday blog post. A temporary rise in inflation is consistent with trends seen after other major events like wars or past labor-market rebounds, economists Ernie Tedeschi and Jared Bernstein said. The White House will continue to monitor consumer prices, but it expects inflation to fade as actual price growth “runs more in line with longer-run expectations,” they added.

Fed Chair Jerome Powell has repeatedly backed up such an outlook. The central bank chief said last month that the Fed will “be patient” in monitoring inflation and eventually lifting interest rates. The most likely scenario during the recovery is that prices move higher but fail to stay elevated as the country enters a new sense of normalcy, Powell said in early March.

Although the Fed operates independently from the executive branch and doesn’t play a role in fiscal spending, officials testing inflation scenarios told the Times that the Biden administration trusts the Fed to intervene and stave off price growth should it accelerate faster than expected.

The latest data signals the country is far from any sort of inflation scare. The Consumer Price Index – a popular gauge of overall inflation – rose 0.6% in March as stimulus, reopening, and vaccination fueled stronger economic activity. Economists expected a 0.5% gain.

Consumer prices rose 2.6% year-over-year, also exceeding estimates. The measure is skewed somewhat by year-ago data, since prices initially dropped when the pandemic first slammed the US economy. Those readings present a lower bar for year-over-year inflation. Though the data points to stronger inflation, price growth still has a ways to go before it trends at the Fed’s above-2% level and warrants serious concern.

That opening paves the way for additional spending. Biden unveiled a $2.3 trillion infrastructure proposal late last month that includes funds for nationwide broadband, improved roads and bridges, and affordable housing. The package is expected to be spent over eight years, compared to the weeks-long rollout seen with much of Biden’s stimulus plan. Such long-term deployment would present little inflationary risk, and Biden has portrayed the plan as an investment in American industry, jobs, and research as opposed to an emergency relief measure.

The March uptick in inflation, however, does signal that price growth is trending higher. Future CPI readings are set to be closely watched releases as the administration balances its spending goals with a red-hot economy. Economists and officials are anticipating stronger inflation. How price growth trends from there will determine whether the Biden administration was successful or created new risks.

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