Treasury Secretary Janet Yellen said that supply chain disruptions are to blame for the country’s too-high inflation but predicted it will be months before it abates.
Yellen, who led the Federal Reserve under President Barack Obama, said that she trusts the central bank to make the right decisions regarding inflation and how to conduct its monetary policy. She said that the country’s economy has been hit by an “incredibly unusual shock” that has led to price increases.
“Supply bottlenecks have developed that have caused inflation,” she said. “I believe that they’re transitory, but that doesn’t mean they’ll go away over the next several months.”
Bottlenecks arise when there is some sort of disruption along the supply chain for a good or resource that causes increased scarcity, thus driving up prices. Global supply chains have been strained since the COVID-19 pandemic took hold last year, resulting in long wait times for items being shipped and sticker shock for consumers.
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Inflation and inflation expectations have risen over the past few months, even as people such as Yellen and officials at the central bank assert that the higher prices are not here to stay and will eventually wind back down.
Annual inflation stood at 4.3% in August, according to the metric preferred by the Fed, the highest rate in 30 years and well above the central bank’s 2% target.
Investor inflation expectations have risen over the course of the year. Bond market prices imply that inflation to be about 2.5% over the next five years, according to data from the Federal Reserve Bank of St. Louis, up from about 1.6% pre-pandemic.
The numbers reflect an overall trend of inflation predictions growing throughout the year.
During the most recent meeting of the central bank’s Federal Open Market Committee, which updates its economic forecasts every other month, the group of officials raised its predictions for this year’s inflation to 4.2%, compared to its June forecast of 3.4%. However, it expects prices to fall back to 2.2% next year, which is slightly up from its previous prediction of 2.1%.
The Fed has said it has no intention to raise its ultra-low interest rates until inflation is running consistently about 2%, which it is now well above, and the country reaches full employment. The unemployment rate now sits at 5.2%, well above the 3.5% level that the economy was humming along with before the pandemic took hold.
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During her Tuesday interview, Yellen made a point of highlighting that the United States is still millions of jobs short from where it was in February 2020 and noted that businesses across the country have reported that they are having trouble finding people to hire.
“We’ve had extraordinary shifts in the pattern of demand away from services and toward goods, and I know the Fed is trying to sort through the implications of that,” Yellen said.
