Janet Yellen, the U.S. Treasury Department, admitted she was “wrong” last year about the threat posed by rising inflation, while insisting that the Joe Biden administration quickly turned its attention to taming rising prices.
“I think I was wrong then about the way inflation would go,” Yellen told CNN on Tuesday, in a rare admission of error by a senior U.S. official.
“There were unexpected and big shocks in the economy that increased energy and food prices and supply bottlenecks that badly affected our economy which I did not – at that time – fully understand, but now we recognize,” she added.
Yellen’s remarks came after she attended a meeting at the White House during which Biden told Jay Powell, chairman of the US Federal Reserve, that he would respect the central bank’s “independence” as it tightened monetary policy, effectively giving it the green light to fight inflation. with sharply higher interest rates.
Like many private forecasters and the Fed itself, Yellen and White House economists believe the jump in inflation in 2021 is linked to a rapid recovery caused by the first round of vaccination against Covid-19 and will disappear relatively quickly. Instead, it survived, and even worsened after the Russian attack on Ukraine.
A spokesman for the US Treasury Department later said Yellen “pointed out” that there were economic shocks “that could not have been foreseen 18 months ago”.
“As she also mentioned, there has been historical growth and the creation of record jobs, and our goal now is to move to stable and stable growth as inflation decreases,” the spokesman added.
Biden met with Powell at the White House on Tuesday for the first time since renouncing the Fed president for a second term, in a sign that the president’s growing concern about high inflation and the threat it poses to economic recovery is growing.
“My plan. . . tackling inflation starts 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 gathered 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 “will not interfere in their critical work” and guarantee “full employment” and “stable prices”.
Biden chose reappoint Powell headed the Fed for four years last year, rejecting progressive calls to hire a Democrat for the job, not a Republican raised by former President Donald Trump to head the central bank. The Senate confirmed Powell for a second term on May 13, with bipartisan support.
The president’s promise not to meddle in Fed decisions is designed to contrast with his predecessor’s approach, in which Trump indignant Powell because he did not lower interest rates because the American economy was slowing down due to his trade wars.
But it is unusual for the 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 accepted the monetary tightening as higher prices became high problematic economically and politically for the White House and Democrats. As a result, their reduction has replaced any concerns that tighter monetary policy would mean a slower economy.
“Chairman Powell and other members of the Fed have noted that at the moment they are laser-focused on tackling inflation as I am,” Biden said, adding that he was convinced that monetary policy would “solve the crisis for the American people.”
The Fed has raised its key interest rate by 75 basis points this year, to between 0.75 and 1 percent. But it is expected to increase furtherfor 50bp at each of its next few meetings, before re-evaluating its policy.
Although the Fed is an independent institution, U.S. presidents have occasionally held public and private meetings with central bank presidents to discuss domestic and international economic developments.
Biden last met with Powell in November, when he nominated him for a second term. Trump met with Powell and Yellen, presidents during his tenure, and Barack Obama invited Yellen and former President Ben Bernanke to the White House during his presidency.
The meeting with Powell is part of what administration officials describe as their latest effort to shift to the economy, and polls show voters resent his handling of inflation even while job growth has been very strong.
The burden of high inflation, especially in terms of petrol and food costs, will be more evident during Remembrance Day weekend, which is one of the busiest travel weekends of the year.
Biden and top officials in his administration have insisted on using every tool 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 a key message that the White House will convey for a whole month,” a White House official said on Tuesday.