President Joe Biden’s Treasury Secretary, Janet Yellen, conceded Thursday that “rapid” inflation will likely continue for at least several months, even as some economists issue more dire forecasts.
Yellen concedes “rapid” inflation will continue for months
The Biden administration and Powell have sought to downplay inflation as a temporary problem, and Yellen did not stray far from that baseline as she blamed the coronavirus, the go-to explanation for the White House.
Describing inflation as “confined to sectors that are now opening back up,” Yellen said that lingering bottlenecks created by the pandemic (really the lockdowns), will keep inflation high for several months before a return to normal.
“I think we will have several more months of rapid inflation,” Yellen said. “So I’m not saying this is a one-month phenomenon, but I think over the medium term, we’ll see inflation decline back toward normal levels. But, of course, we have to keep a careful eye on it.”
Inflation has provided an opening for Republicans to hammer President Biden, who they have blamed for driving up prices with trillions in spending.
The latest report from the Labor Department did little to mollify concerns: prices spiked 5.4 percent in June, faster than expected, bringing inflation to its highest rate since 2008, as real wages dipped .5 percent.
The Fed holds steady, for now
In front of lawmakers this week, Powell similarly said that he expects inflation to remain high for a few months before receding.
“Inflation has increased notably and will likely remain elevated in coming months before moderating,” he said.
Some economists have said that inflation could remain elevated for years, however, and the Fed has acknowledged that it will have to start raising interest rates sooner than anticipated.
Powell signaled that interest rates will remain close to zero for the time being, as critics warn that the central bank is in danger of falling behind the curve.
“I’m concerned that the Fed’s current paradigm almost guarantees that it will be behind the curve if inflation becomes problematic and persistent,” Senator Pat Toomey (R-PA) said.