The former head of the Federal Reserve told the Wall Street Journal editor-in-chief Matt Murray that the White House’s huge spending has contributed to the current inflationary environment, but quickly added that it was “justified” because of the different economic risks.
“So, look, inflation is a matter of demand and supply, and the spending that was undertaken in the American Rescue Plan did feed demand,” Yellen declared.
She added that inflation, which is at a 40-year high, is an unintentional consequence of the Biden administration trying to prevent a sudden economic decline and assist full employment.
The fiscal stimulus and relief package Yellen said had to reinforce the labor market in reaction to the numerous dreadful forecasts.
“But I do think it was justified and appropriate at the time, given the risks the economy faced. 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 food banks, Americans worried about not being able to feed their families, get enough to eat. Forecasts were really quite dire,” Yellen said.
Yellen, who headed the Federal Reserve from 2014 to 2018, said the overall economy’s outlook “is very uncertain” because of the array of risks. The rising commodity prices, the overflowing effects from the war in Ukraine and wider global growth prospects are some of the threats to the post-crisis economy.
Nevertheless, Yellen expects solid growth and a probable “soft landing” for the American 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,” Yellen said.
The Federal Reserve increased the benchmark interest rate by 50 basis points on May 4, the biggest hike in more than 20 years, in order to battle inflation.
Fed Chair Jerome Powell announced at a recent press conference after the Federal Open Market Committee policy meeting that he believes there’s “a good chance to have a soft landing or outcome.”
Meanwhile, an NBC News poll last March found that 38 percent of Americans blamed Biden and his policies for the uncontrolled price inflation. An Emerson College Poll, on the other hand, reported that 39 percent of Americans recognized the present administration as the source of today’s higher cost of living.
Sharing this similar opinion are some economists and market experts.
Biden administration didn’t heed the warnings
Former Treasury Secretary Larry Summers had warned that the American Rescue Plan would cause inflationary pressures when the legislation was first suggested last year. (Related: Economists warn $1.9 trillion Biden relief bill may trigger runaway inflation.)
“We must make sure that it is enacted in a way that neither threatens future inflation and financial stability nor our ability to build back better through public investment,” Summers said in an op-ed in the Washington Post.
A year later, Summers recognized that the White House had failed to heed the warnings he had given while taking note that a heavy rescue measure “would endanger much of the Build Back Better agenda.”
Obama-era economic adviser Stephen Rattner reiterated Summers’ inflation concerns while saying that the enormous deficit-financed fiscal expansion last year played a critical factor in the recent elevated consumer price index.
“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,” Rattner stated in an op-ed for the New York Times last month.
In October, the San Francisco Fed Bank predicted in a research paper that the American Rescue Plan would lead to rising inflation in 2022, counting to the personal consumption expenditure (PCE) price index, the Fed’s preferred inflation gauge.
The PCE price index rose to 6.6 percent in March.
“The estimated impact of the American Rescue Plan on inflation is meaningful, but it is still a far cry from the strong overheating of the 1960s,” the research paper said.
Many months later, the same regional institution stated in its Economic Letter that both the $2.2 trillion CARES Act and American Rescue Plan amplified the current inflationary environment through “an unprecedented injection of direct assistance with a relatively short duration.”
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Watch the video below to know why US Treasury Secretary Yellen said that inflation will be “uncomfortably high” for at least the next year.
This video is from the InfoWars channel on Brighteon.com.
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