Treasury Secretary Yellen Admits Mistake on "Transitory" Inflation Label, Sees Hope for Decline

Strategic Insights -

Treasury Secretary Janet Yellen acknowledged that she and Federal Reserve Chair Jerome Powell "could have used a better word" than "transitory" to describe the expected run of inflation in the US economy, amid record highs of 8.3 per cent in consumer prices over the past year. She expressed hope that inflation would soon be on the decline, saying that it "should be our No. 1 priority" to bring it down. Yellen faced questioning from lawmakers about the causes of inflation and the administration's plans to reduce its impact on Americans.

Key Takeaways:

  • Treasury Secretary Janet Yellen acknowledged that she and Federal Reserve Chair Jerome Powell were wrong in characterizing inflation as "transitory", citing "huge inflation pressures" in the US economy.
  • Yellen hopes that inflation will soon decline, with the Federal Reserve expecting it to remain above the 2-per-cent target through the end of this year.
  • The Congressional Budget Office forecasts high inflation will persist into next year, with the Consumer Price Index expected to rise 6.1 per cent this year and 3.1 per cent in 2023.
  • Yellen defended her support for the $1.9-trillion American Rescue Plan relief package, arguing that it played a central role in driving strong growth in 2021 and afterwards.
  • Yellen suggested that Congress has a role in bringing down prices through enacting legislation that increases taxes on high-wealth individuals and passing a global tax deal.

Statistics:

  • Record highs of 8.3 per cent in consumer prices over the past year.
  • Federal Reserve expects inflation to remain above the 2-per-cent target through the end of this year.
  • Congressional Budget Office forecasts:

+ Consumer Price Index to rise 6.1 per cent this year.

+ Dollar value of American Rescue Plan relief package: $1.9 trillion.

Sources:

  • Byline: FATIMA HUSSEIN; ASSOCIATED PRESS WASHINGTON
  • Congressional Budget Office economic outlook this month
  • Bloomberg biography excerpt on American Rescue Plan relief package
  • Treasury Secretary Janet Yellen's statements on Saturday and during the Senate finance committee hearing