After months of economic woes caused by inflation and supply chain snarls, Secretary of the Treasury Janet Yellen acknowledged she did not anticipate how much inflation would affect consumers.
The lasting effects of the pandemic and the war between Russia and Ukraine put unexpected strains on the U.S. economy that the Biden administration had not planned for, Yellen told CNN on Tuesday. As a result, the economy felt the force of increased food prices and bottleneck supply chains that they “didn’t fully understand” at the time, “but we recognize that now,” she said.
INFLATION TICKED DOWN TO 8.3% ANNUAL RATE IN APRIL, STILL MORE THAN EXPECTED
“There have been a huge series of shocks to the economy that we didn’t anticipate — further variants of COVID that have impacted our economy, Russia’s war on Ukraine — which have boosted energy and food prices globally. The lockdowns that have occurred in China [were another],” Yellen told Wolf Blitzer on the Situation Room. “I think I was wrong then about the path that inflation would take.”
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The comments mark a reversal from comments Yellen made last year: that inflation only posed a “small risk” and wouldn’t be a lasting problem. Now, the Federal Reserve understands the obstacles it has faced over the past year and can begin lowering costs, she said.
“President Biden is focused on supplementing what the Fed does with actions we can take to lower the cost that Americans face for important expenditures they have in their budgets,” Yellen said. “Prescription drugs is one example, healthcare costs another example, utility bills. If Congress is willing to pass some of the proposals to boost the use of nonrenewables, I think that can serve to bring down an important cost that households face.”
Inflation slowed slightly to 8.3% for the 12 months ending in April, according to the consumer price index — the first decline in eight months but still a higher rate than economists had predicted. The numbers reported by the Bureau of Labor Statistics last week revealed that inflation is still going strong despite the Fed’s interest rate hikes and is near the worst it has been since February 1982, during the Great Inflation.
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Signs of inflation coming down are encouraging, Yellen said. But with increasing oil prices and Russia waging war in Ukraine, core inflation numbers are still too high, which may foreshadow further economic problems.
“We’re trying and the Europeans are trying to address [the war] and limit [Russian President Vladimir Putin’s] ability to wage this war,” Yellen said. “There can be impacts on energy and food prices that we can do everything we can domestically to control. The president has authorized historic releases of oil from the Strategic Petroleum Reserve. But we can’t rule out further shocks.”
