U.S. Treasury Secretary Janet Yellen has admitted that she was “wrong” last year about the threat posed by rising inflation, although she insisted that the Joe Biden administration has focused on quickly his attention to tame prices.
“I think I was wrong then about the path that inflation would take,” Yellen told CNN on Tuesday in a rare mistake by a senior U.S. official.
“There have been unexpected and big shocks to the economy that have pushed up energy prices and food and bottlenecks that have hit our economy hard, which I didn’t understand at the time. , but we recognize it now “. she added.
Yellen’s remarks came after she attended a White House meeting during which Biden told U.S. Federal Reserve Chairman Jay Powell that he would respect the central bank’s “independence” as it moves forward. monetary policy, giving it effectively. green light to fight inflation with much higher interest rates.
Like many private forecasters and the Fed itself, economists in Yellen and the White House believed that the peak of inflation in 2021 was related to the rapid recovery caused by the first round of vaccines against Covid-19 and would fade. relatively quickly. Instead, it has persisted, and even worsened as a result of Russia’s attack on Ukraine.
A U.S. Treasury spokesman later said Yellen was “pointing out” that there had been economic shocks “that could not have been predicted 18 months ago.”
“As he also pointed out, there has been record growth and record job creation and our goal now is to make the transition to steady and stable growth as inflation falls,” the spokesman added.
Biden met with Powell at the White House on Tuesday for the first time since he renewed the Fed’s presidency for a second term in office, signaling the president’s concern about high inflation and the threat it poses. for economic recovery is growing. .
“My plan… Addressing inflation begins with a simple proposal: respect the Fed, respect the independence of the Fed, which I have done and will continue to do,” Biden told Powell as they met at the Oval Office.
The president added that he would give Powell and other Fed officials “the space they need to do their job” and “not interfere with their critical work” to ensure “fold employment” and “stable prices.” .
Biden chose to re-appoint Powell for a four-year term as Fed chief last year, rejecting progressive calls for him to run for a Democrat instead of a Republican who was elevated. at the head of the central bank by former President Donald Trump. . Powell was confirmed by the Senate for a second term on May 13, with bipartisan support.
The president’s promise not to interfere with Fed decisions was designed to contrast with his predecessor’s approach, in which Trump rebuked Powell for not lowering interest rates as the U.S. economy it slowed down due to its trade wars.
But it is unusual for a president to support the Fed in raising interest rates in an election year, with midterm elections in November that will determine control of Congress. Biden has accepted monetary tightening because high prices have become very economically and politically problematic for the White House and Democrats. As a result, dropping them has replaced any concern that a tighter monetary policy would mean a slower economy.
“President Powell and other members of the Fed have noted at this time that they have focused on tackling inflation like me,” Biden said, adding that he was confident that monetary policy would “address the crisis for the people.” American “.
The Fed has raised its key interest rate by 75 basis points this year, to a range of 0.75 to 1 percent. But it is expected to increase it further, by 50 bp at each of its upcoming meetings, before re-evaluating its policies.
Although the Fed is an independent institution, U.S. presidents have held regular public and private meetings with seated central bank presidents to discuss national and international economic developments.
Biden last met Powell in November, when he was appointed to a second term. Trump met with Powell and Yellen, the presidents during his tenure, and Barack Obama invited Yellen and former President Ben Bernanke to the White House during his presidency.
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The meeting with Powell is part of what government officials describe as a last-ditch effort to refocus on the economy, with polls showing voters are blaming inflation. job growth has been very strong.
The burden of high inflation, especially on gasoline and food costs, will have become more apparent during Memorial Day weekend, which is one of the busiest travel weekends during year.
Biden and senior officials in his administration have insisted that they are using all the tools at their disposal to fight inflation, although they are still debating whether to reduce tariffs on Chinese imports to reduce some price pressures.
“Talking about the economy and how we can put more money in the pockets of working families will be the key message that the White House will push throughout the month,” a White House official said Tuesday.