WASHINGTON — At her hearing in early 2021, Treasury Secretary Janet L. Yellen told lawmakers it was time to “act big” on a pandemic aid package, brushing off deficit concerns at a time of persistently low interest rates. and warned that inactivity could mean widespread economic ‘scars’.
A year and a half later, prices are rising and interest rates are rising. As a result, Ms. Yellen’s role in crafting and selling the $1.9 trillion US bailout plan, which Congress approved last March, is being dissected amid mounting blame to determine who is responsible for the highest inflation in 40 years. † After months of soaring prices on temporary supply chain problems that would disappear, Ms Yellen admitted last week that she had made it “wrong”, leaving the Biden administration on the defensive and plunging itself into the midst of a political storm.
“I think I was wrong then about the path inflation would take,” Ms Yellen said in an interview with CNN, adding that the economy was dealing with unexpected “shocks” that hit the food and energy prices rose.
Republican lawmakers, who for months have blamed President Biden and Democrats for rising prices, gleefully seized the admission as evidence that the government had mismanaged the economy and should not be trusted to maintain political control.
The Treasury Department has made an effort to clarify Ms Yellen’s comments, saying her admission that she had misjudged inflation simply meant she had failed to see developments such as the war in Ukraine, new variants of the coronavirus or lockdowns in China. can provide. After an excerpt from a book suggested that Ms. Yellen favored a stimulus package smaller than the $1.9 trillion Congress approved last year, the Treasury released a statement denying it had urged more restraint in the expenses.
At this weak point in her tenure, Ms. Yellen is expected to face tough questions about inflation when she testifies before the Senate Finance Committee on Tuesday and before the House Ways and Means Committee on Wednesday. The hearings are ostensibly about the president’s budget request for fiscal year 2023, but Republicans are blaming Mr. Biden’s policies, including the $1.9 trillion stimulus package, high consumer product prices, and Ms. Yellen has given them corn for his first term as a failure.
“How can Americans trust the Biden administration when the same people who were so wrong are still in charge?” said Tommy Pigott, rapid response director of the Republican National Committee.
The glare is particularly uncomfortable for Ms. Yellen, an economist and former chairman of the Federal Reserve, who prides itself on providing clear answers and staying above the political fray.
Ms Yellen said in her opening statement on Tuesday that the Biden administration is working hard to tackle inflation.
“We are currently facing macroeconomic challenges, including unacceptable levels of inflation, as well as the headwinds associated with the disruptions caused by the impact of the pandemic on supply chains, and the effects of supply-side disruptions to oil and food markets such as consequence of the Russian war in Ukraine,” Ms Yellen said, according to her prepared remarks.
She pointed to Mr. Biden’s proposed clean energy initiatives and plans to reform the prescription drug market as measures that could lower costs for Americans.
In recent weeks, Ms Yellen has had to defend the Biden administration’s economic policies, even as rifts have emerged within the economic team. She has expressed reservations about the Trump administration’s lack of progress in rolling back some Chinese tariffs, which she sees as taxes on consumers that were “not strategic,” and has been reluctant to propose student debt cancellations. who support inflation when people have more money to spend.
Over the weekend, Ms Yellen came under fire again after an excerpt from an upcoming biography of hers indicated she had tried unsuccessfully to lower the pandemic relief bill over inflation concerns. The Treasury Department released a rare statement from Ms Yellen on Saturday denying claiming the package was too large.
“I never pushed for the approval of a smaller US bailout plan,” she said, insisting the funds have helped the United States economy weather the pandemic and the fallout from Russia’s war in Ukraine.
Over the past year, Ms Yellen has been a staunch public defender of the Biden administration’s economic agenda. She has at times clashed publicly with critics such as Lawrence H. Summers, a former Secretary of the Treasury, who warned that too much stimulus could overheat the economy.
For months, Ms Yellen – and many other economists – spoke of inflation as “transient”, saying that rising prices were the result of supply chain problems that would disappear and “base effects”, making the monthly figures look worse compared to prices that were low during the early days of the pandemic.
In May last year, Ms Yellen seemed to acknowledge that the Biden administration’s spending proposals had the potential to overheat the economy. She noted at The Atlantic’s Future Economy Summit that the policy could boost growth and the Fed might need to intervene with “modest” rate hikes if the economy picks up too much.
“Interest rates may need to rise slightly to keep our economy from overheating, even though the additional spending is relatively small relative to the size of the economy,” said Ms Yellen.
But economic indicators still indicated that inflation remained under control for much of that spring. In an interview with The New York Times last June, Ms Yellen said she believed inflation expectations were in line with the Federal Reserve’s 2 percent target and that although wages were rising, she did not see a “wage price spiral” on the horizon. appear that could anchor inflation.
“We don’t want a situation of prolonged excess demand in the economy leading to wage and price pressures that build up and become endemic,” she said, adding that she didn’t see that happening.
In the months that followed, as prices continued to climb, Ms Yellen acknowledged that supply chain problems for items such as potato chips – which are critical to a variety of products, including cars – were worse than she had initially realized. She started predicting that inflation could continue well into this year.
“I’m ready to delete the word transient,” Ms Yellen said at a Reuters-sponsored event in December, noting that new virus variants had clouded the economic outlook. “I agree that’s not an appropriate description of what we’re dealing with.”
Fed chairman Jerome H. Powell had signaled just days earlier that the Fed would stop using that word to describe inflation, showing that Ms. Yellen was not out of step with other key economic policymakers.
While some Republicans have called for Ms. Yellen’s resignation, Democrats inside and outside the Biden administration have protested over the past week.
Mr. Summers told CNN last week that Ms. Yellen had echoed the views of most mainstream economists last year when she downplayed inflation and that those erroneous projections required a rethink of economic models.
“The consensus did not see the risk of overheating,” Mr Summers said. “I’ve been wrong many times in my life, but I did see that there was a very high demand pressure increasing and it seemed plausible given that there would be bottlenecks.”
Brian Deese, the director of the White House National Economic Council, rejected the suggestion that Ms. Yellen could be sidelined because the government wants to change the way it communicates about the economy.
“Secretary Yellen is our primary spokesperson for the economy,” Mr Deese told Fox News last week. “It will remain that way, as has been the case.”
