US Treasury Secretary Janet Yellen admits inflation forecast errors
During 2021 Biden officials sought to quell fears about inflation, but the war in Ukraine has shocked global markets.
Inflation has been a problem for the US economy for nearly a whole year. The inflation rate in February of 2021 was 1.7 percent, just under the Federal Reserves 2 percent target. However, from April 2021 inflation began to take a sharp rise to 4.2 percent, so far at 8.5 percent in June 2022.
The Biden adminsitration has been criticised for the problem, which threatens to derail recovery from the pandemic. Furthermore, him and his team have drawn criticism for comments they made last year about inflation. One of these people is Treasury Secretary Janet Yellen. Last year she described inflation as “transitory,” but in a recent CNN interview she changed her opinion on the matter.
What did Janet Yellen say?
“I think I was wrong then about the path that inflation would take,” Yellen told CNN.
As I mentioned, there have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn’t -- at the time -- didn’t fully understand, but we recognize that now,” she said.
A Treasury spokesperson told CNN in a statement that Yellen’s comments were in the context of certain unforeseen events that ended up hitting the economy.
“The Secretary was pointing out that there have been shocks to the economy that have exacerbated inflationary pressures which couldn’t have been foreseen 18 months ago, including Russia’s decision to invade Ukraine, multiple successive variants of covid-19, and lockdowns in China,” the spokesperson said. “As she also noted, there has been historic growth and record job creation and our goal is now to transition to steady and stable growth as inflation is brought down.”
Why is inflation so high?
While the Biden administration hoped the inflation would already be on its way down, the war in Ukraine has caused an even deeper economic crisis that threatens many more countries than just the US.
As both Russia and Ukraine are large producers of natural resources, the price of commodities has gone through the roof. This is especially true for natural gas and oil as Russia has been sanctioned by much of NATO, cutting a large part of the world off from such an important resource. The cost of gas in the US has continued to grow, soaring to an all-time high of $4.33 in March 2022, up from a pandemic low of $1.94 in May 2020.
The national average price could hit $4.50 a gallon or even higher this summer. “Anything goes from June 20 to Labor Day,” said Tom Kloza, global head of energy analysis for the Oil Price Information Service.