Yellen Expects High Inflation Through Mid-2022 Before Easing

Treasury Secretary Janet Yellen said she expects price increases to remain high through the first half of 2022, but rejected criticism that the U.S. risks losing control of inflation.Inflation is expected to ease in the second half as issues ranging from supply bottlenecks, a tight U.S. labor market and other factors arising from the pandemic improve, Yellen said on CNN’s “State of the Union” on Sunday. –≠.

“I don’t think we’re about to lose control of inflation,” Yellen said, pushing back on criticism by former Treasury Secretary Lawrence Summers this month. “Americans haven’t seen inflation like we have experienced recently in a long time. But as we get back to normal, expect that to end.”
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Federal Reserve Chairman Jerome Powell raised concern Friday over the persistently high level of inflation. Powell stated that although they will soon be tapering their bond purchases, they would still continue to raise interest rates.

The S&P 500 Index posted its first decline in eight days. Powell said policies are “well-positioned” to manage a range of outcomes.

Yellen declined to say how she’s advised President Joe Biden on his decision whether to reappoint Powell. However, she said that financial regulation “markedly strengthened” under Powell’s term, as it did during hers and under her predecessor, Ben Bernanke.

As the pandemic added stress to the financial markets, “the core of our financial system did very well because of the improvements in capital liquidity, risk management, stress testing,” Yellen said. “And those improvements have stayed in place during the Powell regime.”

Debt Ceiling

She also said it’s “utterly essential” to raise the U.S. debt ceiling, reiterating earlier warnings about the consequences of a potential U.S. default.

The U.S. posted the second-largest annual budget deficit on record for 2021 as pandemic-relief spending sustained the federal government’s massive borrowing needs.

A Treasury Department report released this week showed that the fiscal year ending September had a deficit of $2.77 trillion, which was lower than the $3.1 billion peak in 2019. As a share of the economy, the deficit narrowed to 12.4% in the fiscal year, from 15% in 2020 — the biggest since World War II.

“It’s a housekeeping matter, doing what’s necessary to pay our bills,” she said. “I have confidence it will get done.”

© 2021 Bloomberg L.P.

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