- 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.
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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.