Speaking in an interview on May 4 with Matt Murray, Editor-In-Chief of the Wall Street Journal, Treasury Secretary Janet Yellen said, “The White House’s enormous spending did play a role in the current inflationary environment.”
Yellen, the former head of the Federal Reserve, and the first female U.S. Treasury Secretary, was referring to Joe Biden’s $1.9 trillion American Rescue plan, although she noted that it was justified because of the various economic risks.
“So, look, inflation is a matter of demand and supply, and the spending that was undertaken in the American Rescue Plan did feel demand,” Yellen said.
Yellen also said, “Inflation, which is at a 40-year high, is an unintended consequence of the Biden administration attempting to avoid a sharp economic downturn and facilitate full employment.” Continuing she said, “The fiscal stimulus and relief package had to support the labor market in response to the many dire forecasts.
“But I do think it was justified and appropriate at the time, given the risks the economy faced,” she said. “At the time that President Biden was inaugurated, we had an economy where forecasters were envisioning very high unemployment for a very long time. We had especially low-wage workers who had been laid off in massive numbers, We saw cars lined up for miles in foods banks, Americans worried about not being able to feed their families and forecast were really quite dire.”
She didn’t bring up or say anything about the COVID-19 pandemic or what the shut down of the economy effect had on the job markets and the inflation factor.
She did touch upon the overall economy, noting that “the outlook is very uncertain” because of the panoply of risks. Somes of the threats to the post-crisis economy are surging commodity prices, the spillover effects from the war in Eastern Europe, and broader global prospects.
She concluded saying, “I anticipate solid growth and a potential ‘soft landing’ for the U.S. economy. I do believe we’re going to see solid growth in the coming year. The Fed will need to be skillful and also lucky, but I believe it’s a combination that is possible.”
Former Treasury Secretary Larry Summers had been warning that the American Rescue Plan would trigger inflationary pressures when the legislation was first proposed last year.
“We must make sure that is enacted in a way that neither threatens future inflation and financial stability nor our ability to build back better through public investment,” Summers wrote in an op-ed in The Washington Post.
A year later, he acknowledged that the White House had failed to heed these warnings, noting that a hefty rescue measure “would endanger much of the Build Back Better agenda,” he wrote in another Washington Post opinion piece.
Obama-era economic adviser Stephen Rattner echoed Summers’ inflation concerns, ringing alarm bells that the immense deficit-financed fiscal expansion in 2021 played a significant factor in today’s elevated consumer price index (CPI).
The Federal Reserve raised the benchmark interest rate by 50 basis points (1/2%) on May 4, the biggest increase in more than 20 years, in order to fight inflation. Fed Chair Jerome Powell said at a press conference after the Federal Open Market Committee (FOMC) policy meeting that he thinks there’s “a good chance to have a soft, or softish, landing or outcome.”
Rattner said in an op-ed for The New York Times last month, “The $1.9 trillion American Rescue Plan passed in the early days of the Biden administration will go down in history as an extraordinary policy mistake.”