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In her January 2021 confirmation hearing, then-nominee and now U.S. treasury secretary Janet Yellen told the Senate it was time to “act big” to stimulate the economy and pass president Joe Biden’s almost $2-trillion American Rescue Plan to boost the economy and American consumers back to post-COVID financial health.
The plan boosted the federal minimum wage, sent a check to every adult earning $75,000 a year or less, made funds available to small businesses, and extended the federal $400 weekly unemployment benefit, among other measures.
Interest rates were at record low levels and the plan was needed to prevent long-term economic “scarring,” she argued, minimizing concerns about possible inflation because prices would settle back down once supply chains unkinked themselves, she assured lawmakers.
The plan passed, the federal deficit expanded, and now the Biden administration, and Yellen in particular, are being blamed for flooding money into an economy where goods were in short supply, a move that, in retrospect, has helped to fuel inflation’s current record pace.
After months of saying inflation was “transitory” and clinging to the idea that prices would settle as supply problems resolved themselves, earlier this month Yellen said, “I think I was wrong about the path inflation would take,” saying she could not have anticipated “shocks” to the economy such as the Omicron virus variant’s global wave or Russia’s attack on Ukraine.
We reported her admission in “Yellen Half-Admits She Got Inflation Wrong” (7 Jun 2022).
Republicans used her mea culpa to further bludgeon the Biden administration and Democrats in general for their role in creating today’s skyrocketing prices.
Even Vladimir Putin used Yellen’s remarks to absolve Russia of any blame for global inflation, as we noted in “Putin Absolves Ukraine War from Blame for Inflation” (7 Jun 2022).
Now Yellen is pushing back.
“It can’t be that the bulk of the inflation we’re experiencing reflects the impact of the American Rescue Plan,” Yellen said in Senate testimony last week, adding that the entire world, not just the U.S., is struggling with runaway food and fuel prices.
She added that the plan’s expanded Child Tax Credit boosted demand for food and may have had a “marginal” impact on prices, but that is justified by the fact that fewer American children are hungry.
The credit “cut childhood poverty dramatically,” Yellen said.
As a key defender of Biden’s economic policies, Yellen has publicly clashed with former treasury secretary Lawrence Summers, who warned early on that stimulating the economy could lay a foundation for inflation later on.
“The consensus [of economists] didn’t see the overheating risk,” Summers said in a CNN interview earlier this month.
“There was very substantial demand pressure that was building and it did seem plausible that there would be bottlenecks” as a result, he said.
As the November Congressional election nears and inflation continues to set records, which we report in this issue in “May Inflation Sets Another 40-Year Record,” a White House spokesman rejected the idea that Yellen would be silenced as the administration’s chief economic voice.
“Secretary Yellen is our chief spokesperson on the economy,” the person told reporters in a press briefing.
TREND FORECAST: In our article “Stimulus is Fueling Inflation” (26 Oct 2021), we wrote that “the Feds and Wall Street keep blabbing that supply chain disruptions are fueling inflation, but they have been ignoring the #1 inflation spiker: government and central banks flooding the economy with cheap money.
The American Rescue did temporarily stoke inflation, according to a study released in October 2020 by the Federal Reserve Bank of San Francisco.
In 2021, the stimulus added 0.3 percent points to the core consumer price index, which leaves out food and energy prices, Fed economists calculated.
Even though the stimulus money has largely been spent, it will add “a bit more” than 0.2 percentage points to 2022’s core price index, they predicted.