new York Inflation in the US has risen to 8.3 percent, the highest level in four decades – and that is becoming a problem for Treasury Secretary Janet Yellen. The former head of the US Federal Reserve had to face the critical questions of the Senate and House of Representatives committees twice this week alone.
Yellen’s critics accuse her of underestimating the danger of inflation as a member of President Joe Biden’s government and of unnecessarily fueling the economy and thus prices with the massive aid program last year.
In March 2021, the US government provided 1.9 trillion in state aid with the “American Rescue Plan”.
“There is no doubt that this program created the mess we are in today,” Republican Senator John Thune accused Yellen during the hearing in Washington. Inflation is currently eating up all salary increases in the booming economy: “In fact, people have had their salaries cut.”
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The experienced economist is quite used to critical questions. But this time she is being accused in particular of calling inflation “temporary” at the end of last year and of supporting high public spending.
Yellen admits mistakes
Just last week, Yellen admitted to making mistakes in her assessment: “I think I misjudged which path inflation would take,” Yellen said in an interview with CNN. She added that since then, unpredictable “shocks” have fueled food and energy prices.
The Ministry of Finance then quickly made it clear that Yellen’s words only meant that she could not foresee the war in Ukraine, new corona variants or new lockdowns in China. But her critics see her admission as proof she made a big mistake and may even be unfit for the job.
In addition, there is a book by journalist Owen Ullmann, which is due to be published in September, according to which Yellen himself is said to have expressed doubts about the large stimulus package and pushed for a reduction. The Ministry of Finance denies this representation.
“How can Americans trust the Biden administration when the same people who got it so wrong are still in office?” asks Republican Senator Tommy Pigott.
Republicans speak of “Bidenflation”
The government should have known, agrees his colleague in the House of Representatives, Kevin Brady. “You said then that the American Rescue Plan would not bring inflation. They were wrong,” Brady Yellen accuses and speaks of “Bidenflation”.
“There is no doubt that inflation is too high and that it needs to be addressed,” Yellen admits. But “we’re starting this from a position of strength.” The US is having the “fastest recovery of any developed country,” she says, noting that other countries like the UK, Germany and Canada are also experiencing high inflation. Inflation can hardly be due to Biden’s aid package alone.
Yellen also rejects the criticism that inflation was already foreseeable at the beginning of 2021. “Last year the expectations for unemployment were more than nine percent,” she defends the massive aid program. The greatest danger at the time did not seem to have been higher prices, but queues in front of the soup kitchens. “We adopted a plan that was more successful in tackling unemployment than anyone expected,” she said.
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In fact, unemployment in the US is currently just 3.6 percent. Americans’ combined savings today are also 2.1 trillion higher than they were before the pandemic. Nevertheless, the high prices for petrol, energy and food are causing problems for people.
Inflation determines the midterm elections
Most recently, the CEO of the major bank JP Morgan Jamie Dimon sounded the alarm. He has warned of an “economic hurricane” that is not yet clear as to whether it will be a “minor storm or a ‘Sandy’ hurricane.”
The issue of inflation is extremely important for the government, especially in view of the midterm elections in the fall: If the prices for gas, food and housing remain as high as they are now, the Democrats will very likely lose their already wafer-thin majority in the Senate in November.
Biden recently tried to blame the Fed for inflation. So he invited Fed Governor Jerome Powell to the White House with Yellen for a rather unusual meeting to clarify that the Fed is responsible for inflation.
Biden also published an opinion piece in the Wall Street Journal on inflation. In it, he clarified that the Fed has “the primary responsibility to control inflation.” His predecessor Donald Trump humiliated the Fed. Others would have tried to exert influence in times of high inflation. “I will not do that,” the US President assured in the article. But in doing so he cleverly shifts the responsibility for inflation onto the central bank.
As Fed chair, Yellen managed a soft landing for the economy when she had to slowly end the expansionary central bank policy without stalling the economy. Many observers have their doubts as to whether her successor Powell will succeed.
More: For Biden, inflation is becoming a matter of fate