Janet Yellen has said that high US inflation won’t be a problem for the next decade, despite the recent price spikes. She noted that she supports the American Rescue Plan, but pointed out that the ARP did not solve the underlying problem, which is global inflation. As a result, the US is seeing higher prices this year.
The Federal Reserve Chairwoman’s comments came after she took a question from the House Ways and Means Committee. She said that high inflation will likely persist, but will eventually be tamed. Yellen noted that the Biden administration has raised the projection to 4% inflation and that the COVID-19 rescue spending contributed only modestly to the cost hikes.
Janet Yellen, the head of the Federal Reserve, is admitting that she made a mistake in predicting the trajectory of US inflation. She once called price gains “transitory,” but now she admits that her original prediction was wrong. She has faced criticism for the size of the American Rescue Plan, which was passed by Congress in March 2021.
Yellen believes that US economic growth will remain strong in the coming months, as long as consumer spending and job growth remain strong. However, this optimism is tempered by the reality that the world economy faces many serious threats. Continuing war in the Ukraine, rising oil prices, and the Covid virus are all likely to wreak havoc on the global economy.
The current high US inflation rate is still at four-decade highs. Soaring oil prices have increased prices across all sectors of the economy. The Obama administration has worked to unlock supply chain bottlenecks, which can be a model for the current economic challenges. Biden’s policy team has discussed various policy options, with some focus on oil and other downstream pressures while others have focused on immigration, housing, and other high-stakes issues. Despite the current turmoil, inflation considerations are woven throughout these high-level debates.
While the president wants to contain inflation, he does not want to sacrifice economic gains. As a result, he wants to keep interest rates low for as long as possible. But this is not a good strategy if you don’t want to sabotage the country’s future growth. It’s better to control the inflation now rather than wait for it to happen later.
Yellen believes that the acceleration of US inflation was caused by circumstances beyond her control. For example, Yellen cannot predict a virus named Omicron that extends the Covid-19 pandemic, disrupting global shipping and supply chains. Furthermore, she cannot predict the Russian invasion of Ukraine, which will send oil prices through the roof in 2022.