WASHINGTON – At her confirmation hearing in early 2021, Treasury Secretary Janet L. Yellen told lawmakers it was time to “act broadly” on a pandemic relief package, minimizing the pandemic. worries about deficits at a time of perpetually low interest rates and warning that inaction. it could mean a widespread economic “scar”.
A year and a half later, prices are skyrocketing and interest rates are rising. As a result, Ms. Yellen’s role in the development and sale of the $ 1.9 trillion US Rescue Plan, approved by Congress in March last year, is being discussed in the midst of an increasingly intense game of guilt to determine who is responsible for the highest inflation rates in 40 years. . After months of fixing rising prices on temporary supply chain problems that would dissipate, Ms Yellen acknowledged last week that she had been “wrong”, putting the Biden administration on the defensive and in the midst of a political storm.
“I think I was wrong then about the path that inflation would take,” Ms. Yellen said in an interview with CNN, adding that the economy had faced unexpected “shocks” that boosted food prices. and energy.
Republican lawmakers, who have spent months blaming President Biden and Democrats for rising prices, happily took advantage of the admission as proof that the administration had mismanaged the economy and should not be trusted to maintain political control.
The Treasury Department has struggled to clarify Ms. Yellen’s statements, saying that its acknowledgment that it misinterpreted inflation only meant that it could not have foreseen developments such as the war in Ukraine, new variants of the coronavirus or China. After an excerpt from the book suggested that Ms. Yellen favored a stimulus package smaller than the $ 1.9 trillion Congress approved last year, the Treasury issued a statement denying that it had called for more restraint. the cost.
At this tenuous time in her term, Ms. Yellen is expected to face tough inflation questions as she testifies before the Senate Finance Committee on Tuesday and Wednesday before the House Media and Ways Committee. Hearings are ostensibly on the president’s budget request for fiscal year 2023, but Republicans are blaming Mr Biden’s policies, including the $ 1.9 trillion stimulus package, for high prices. of consumer products, and Ms. Yellen’s comments have given them strength to support them. first term as failure.
“How can Americans trust the Biden administration when the same people who were so wrong are still at the helm?” said Tommy Pigott, quick-response director of the Republican National Committee.
The dazzle is especially uncomfortable for Ms. Yellen, an economist and former president of the Federal Reserve, who prides herself on giving direct answers and staying above the political fight.
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 headwinds associated with disruptions caused by the effect of the pandemic on supply chains and the effects of supply disruptions. in the oil and food markets as a result of Russia’s war in Ukraine. ” Ms. Yellen said, according to her prepared remarks.
He noted the clean energy initiatives proposed by Mr. Biden and plans to reform the prescription drug market as measures that could reduce costs for Americans.
In recent weeks, Ms. Yellen has had to defend the Biden administration’s economic policies, although failures have arisen within the economic team. He has expressed reservations about the lack of progress in reducing some of the Trump administration’s tariffs in China, which he considers consumer taxes that were “not strategic,” and has been reluctant to support the proposals. of student debt forgiveness, which could feed even more. inflation if people have more money to spend.
Over the weekend, Ms. Yellen was again criticized after an excerpt from an upcoming biography of hers indicated that she had tried unsuccessfully to reduce the pandemic aid bill due to inflation issues. The Treasury Department issued a rare statement Saturday from Ms. Yellen denying she argued that the package was too large.
“I never urged the adoption of a smaller U.S. rescue plan package,” he said, stressing that the funds have helped the U.S. economy withstand the pandemic and the aftermath of the Russian war. Ukraine.
For the past year, Ms. Yellen has been an ardent public defender of the Biden administration’s economic agenda. He has sometimes publicly confronted critics such as Lawrence H. Summers, a former Treasury secretary, who warned that too much stimulus could overheat the economy.
For months, Ms. Yellen, and many other economists, called inflation “transient,” saying that rising prices were the result of dissipating supply chain problems and “base effects,” which led to monthly figures. they seem worse compared to prices that fell during the first days of the pandemic.
In May last year, Ms Yellen seemed to recognize that the Biden administration’s spending proposals had the potential to overheat the economy. He noted at the summit on the future economy of the Atlantic that policies could stimulate growth and that the Fed could have to intervene with “modest” interest rate hikes if the economy accelerates too much.
“Interest rates may need to rise a little bit to make sure our economy doesn’t overheat, even though the additional expense is relatively small relative to the size of the economy,” Yellen said. .
But economic indicators still suggest 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 while wages were rising, he did not see a “wage price spiral” on the horizon. which could cause inflation to tighten.
“We don’t want a prolonged excess demand situation in the economy that leads to wage and price pressures that grow and become endemic,” he said, adding that he did not see this happening.
In the months that followed, as prices continued to rise, Ms. Yellen acknowledged that supply chain issues such as chips, which are crucial for a variety of products, including cars, were worse. than he had originally realized. He began to project that inflation could last well into this year.
“I am willing to withdraw the transitional word,” Ms. Yellen at a Reuters-sponsored December event noted that new variants of the virus had disrupted the economic outlook. “I can agree that this was not a proper description of what we are dealing with.”
Fed Chairman Jerome H. Powell had indicated a few days before that the Fed would stop using that word to describe inflation, proving that Ms. Yellen was not out of line with other key economic leaders.
While some Republicans have called for Ms. Yellen’s resignation, Democrats outside and inside the Biden administration have defended her last week.
Summers told CNN last week that Ms. Yellen had echoed the views of most major economists last year when she downplayed inflation and that such incorrect projections called for a rethinking of economic models.
“The consensus didn’t see the risk of overheating,” Summers said. “I’ve been wrong many times in my life, but I saw that there was a very significant demand pressure that was accumulating and it seemed plausible since there would be bottlenecks.”
Brian Deese, director of the White House National Economic Council, rejected the suggestion that Ms. Yellen could be sidelined as the administration seeks to change the way it communicates about the economy.
“Secretary Yellen is our spokesperson for the economy,” he said. Deese told Fox News last week. “This will continue to be the case, as has been the case.”