WASHINGTON — At her confirmation hearing in early 2021, Treasury Secretary Janet L. Yellen told lawmakers that it was time to “act big” on a pandemic relief package, playing down concerns about deficits at a time of perpetually low rates of interest and warning that inaction could mean widespread economic “scarring.”
A 12 months and a half later, prices are soaring and rates of interest are marching higher. Because of this, Ms. Yellen’s role in crafting and selling the $1.9 trillion American Rescue Plan, which Congress passed in March of last 12 months, is being parsed amid an intensifying blame game to find out who’s chargeable for the best rates of inflation in 40 years. After months of pinning rising prices on temporary supply chain problems that will dissipate, Ms. Yellen acknowledged last week that she had gotten it “mistaken,” putting the Biden administration on the defensive and thrusting herself into the center of a political storm.
“I feel I used to be mistaken then in regards to the path that inflation would take,” Ms. Yellen said in an interview with CNN, adding that the economy had faced unanticipated “shocks” that increased food and energy prices.
Republican lawmakers, who’ve spent months blaming President Biden and Democrats for rising prices, gleefully seized upon the admission as evidence that the administration had mismanaged the economy and shouldn’t be trusted to stay in political control.
The Treasury Department has scrambled to make clear Ms. Yellen’s remarks, saying her acknowledgment that she misread inflation simply meant that she couldn’t have foreseen developments reminiscent of the war in Ukraine, recent variants of the coronavirus or lockdowns in China. After a book excerpt suggested Ms. Yellen favored a stimulus package smaller than the $1.9 trillion that Congress approved last 12 months, the Treasury released an announcement denying that she had urged more spending restraint.
At this tenuous moment in her tenure, Ms. Yellen faced tough questions on inflation when she testified before the Senate Finance Committee on Tuesday and is prone to confront similar queries on Wednesday, when she appears before House lawmakers. The hearings are ostensibly in regards to the president’s budget request for the 2023 fiscal 12 months, but Republicans are blaming Mr. Biden’s policies, including the $1.9 trillion stimulus package, for prime prices for consumer products. Ms. Yellen’s comments have given them grist to forged his first term as a failure.
“How can Americans trust the Biden administration when the identical those that were so mistaken are still in charge?” said Tommy Pigott, rapid response director for the Republican National Committee.
The glare is especially uncomfortable for Ms. Yellen, an economist and a former chair of the Federal Reserve, who prides herself on giving straight answers and staying above the political fray.
Ms. Yellen said on the hearing on Tuesday that current levels of inflation were “unacceptable.” She pointed to “disruptions attributable to the pandemic’s effect on supply chains, and the consequences of supply-side disturbances to grease and food markets resulting from Russia’s war in Ukraine” as the first reasons for prime prices. She said Mr. Biden’s proposed clean energy initiatives and plans to reform the prescription drug market were measures that might lower costs for Americans.
In recent weeks, Ms. Yellen has needed to defend the Biden administration’s economic policies at the same time as fault lines have emerged inside the economic team. She has expressed reservations in regards to the lack of progress in rolling back a few of the Trump administration’s China tariffs, which she views as taxes on consumers that were “not strategic,” and he or she has been reluctant to support student debt forgiveness proposals, which could further fuel inflation if people have more cash to spend.
Over the weekend, Ms. Yellen got here under fire again after an excerpt from a forthcoming biography of her indicated that she had sought unsuccessfully to pare down the pandemic aid bill due to inflation concerns. The Treasury Department released a rare Saturday statement from Ms. Yellen denying that she argued that the package was too big.
“I never urged adoption of a smaller American Rescue Plan package,” she said, insisting that the funds have helped the US economy weather the pandemic and the fallout from Russia’s war in Ukraine.
Pressed by Senator Steve Daines, a Republican from Montana, in regards to the extent to which the stimulus money fueled inflation, Ms. Yellen argued that countries world wide were all grappling with rising prices and yet pursued different fiscal policies.
“It may’t be the case that the majority of the inflation that we’re experiencing reflects the impact of the A.R.P.,” Ms. Yellen said.
Ms. Yellen also pushed back against the concept that an expanded child tax credit that was included within the stimulus package had a major impact on inflation. She acknowledged that it increased demand and might need led to a “marginal” increase in food prices, but said that was justified by the incontrovertible fact that more children had access to food.
“It cut childhood poverty dramatically,” Ms. Yellen said.
Credit…Jason Andrew for The Recent York Times
Ms. Yellen did appear to veer away from the view of some Democrats that corporate greed and profiteering was a primary reason for rising prices.
Asked by Senator Charles E. Grassley, an Iowa Republican, about whether greed was responsible, Ms. Yellen demurred.
“I assume I see the majority of inflation as reflecting supply and demand aspects,” she said, sidestepping the difficulty of greed.
Throughout the last 12 months, Ms. Yellen has largely been an ardent public defender of the Biden administration’s economic agenda. She has clashed publicly at times with critics reminiscent of Lawrence H. Summers, a former Treasury secretary, who warned that an excessive amount of stimulus could overheat the economy.
For months, Ms. Yellen — and plenty of other economists — talked about inflation as “transitory,” saying rising prices were the results of supply chain problems that will dissipate, and “base effects,” which were making the monthly numbers look worse as compared with prices that were depressed throughout the early days of the pandemic.
By May of last 12 months, Ms. Yellen appeared 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 policies could spur growth and that the Fed might need to step in with “modest” rate of interest increases if the economy revved up an excessive amount of.
“It could be that rates of interest could have to rise somewhat to make certain that our economy doesn’t overheat, regardless that the extra spending is comparatively small relative to the scale of the economy,” Ms. Yellen said.
But economic indicators still suggested that inflation remained under control through much of that spring. In an interview with The Recent York Times last June, Ms. Yellen said she believed that inflation expectations were consistent with the Federal Reserve’s 2 percent goal and that while wages were increasing, she didn’t see a “wage price spiral” on the horizon that might cause inflation to develop into entrenched.
“We don’t need a situation of prolonged excess demand within the economy that results in wage and price pressures that construct and develop into endemic,” she said, adding that she didn’t see that taking place.
In the following months, as prices kept rising, Ms. Yellen acknowledged that offer chain problems for items reminiscent of microchips — that are crucial for quite a lot of products, including cars — were worse than she had originally realized. She began to project that inflation could last well into this 12 months.
“I’m able to retire the word transitory,” Ms. Yellen said at a December event sponsored by Reuters, noting that recent virus variants had muddled the economic outlook. “I can agree that that hasn’t been an apt description of what we’re coping with.”
Credit…Doug Mills/The Recent York Times
Jerome H. Powell, the Fed chair, had just days earlier signaled that the Fed would stop using that word to explain inflation, showing that Ms. Yellen was not out of line with other key economic policymakers.
Ms. Yellen reiterated on Tuesday that she and Mr. Powell “probably could have used a greater word than transitory.”
Although some Republicans have called for Ms. Yellen’s resignation, Democrats inside and outside the Biden administration have within the last week come to her defense.
Mr. Summers said on CNN last week that Ms. Yellen had been echoing the views of most mainstream economists last 12 months when she played down inflation and that those incorrect projections called for a rethinking of economic models.
“The consensus didn’t see the overheating risk,” Mr. Summers said. “I’ve been mistaken loads of times in my life, but I did see that there was very substantial demand pressure that was constructing and it seemed plausible on condition that that there can be bottlenecks.”
Brian Deese, the director of the White House National Economic Council, dismissed the suggestion that Ms. Yellen could possibly be sidelined because the administration looked to shift the way it communicated in regards to the economy.
“Secretary Yellen is our chief spokesperson on the economy,” Mr. Deese told Fox News last week. “That may proceed to be the case, as has been the case.”
On Tuesday, Ms. Yellen made the case that the US economy was facing a potentially deep downturn when Mr. Biden took office and that a sturdy rescue package made sense on the time. Those funds, she argued, ensured that the economy remained strong.
“We now have the fastest recovery of any developed country,” Ms. Yellen said. “There’s absolute confidence that inflation is simply too high and it must be addressed, and we’re starting to do this from a position of strength.”