WASHINGTON: Soaring US inflation rates are “not acceptable” but the health of the world’s largest economy is fundamentally sound thanks to policies that have mitigated the impact of the pandemic, Treasury Secretary Janet Yellen said. Yellen conceded in an interview she is “concerned” about inflation running at its highest level in decades, and warned of further “global fallout” if the West moves ahead with punishing sanctions on Russia over the Ukraine crisis.
But President Joe Biden’s Treasury chief struck a confident note on the broader outlook for the US economy, which despite two years of pandemic upheaval has avoided the catastrophic damage seen in the wake of the 2008 global financial crisis. In particular, Yellen pointed to the strength of the job market.
And she voiced confidence that the Federal Reserve will act in an “appropriate way” to contain inflation while ensuring the US recovery continues. Prices have been on the rise globally for months, triggered by pandemic supply and logistics snags that initially hit industries like autos and appliances, but have since spread to a wide range of goods. US consumer prices in January climbed 7.5 percent compared to a year earlier, their largest increase since February 1982. Months of surging prices defied predictions from central bankers and other economists who said inflation pressures would abate quickly, and have undermined Biden’s popularity.
Tools at the ready
The US central bank is now poised to embark on a series of interest rate increases, pulling back the extraordinary stimulus pumped into the economy at the start of the pandemic. But rising borrowing rates could slam the brakes on economic activity-something the Fed has struggled with in past recoveries. “I have confidence the Fed… (will) deploy their suite of tools in an appropriate way to keep the recovery on track, but also deal with the excess pressures that we have that are causing inflation,” Yellen said.
Energy prices have contributed to rising inflation pressures, and tensions with Russia over Ukraine threaten to worsen the situation. “We are concerned about potential impacts on energy markets, given the importance of Russia’s role as a supplier of oil to the world market and of natural gas to Europe,” she said. Treasury is working with US allies to prepare a package of sanctions to retaliate against Russia if it invades Ukraine. While Russia would be the target, “we recognize that there will be some global fallout from sanctions as well,” Yellen said.
She said high prices should diminish as the pandemic impact wanes, and the Biden administration is “doing everything that we can” to help alleviate the bottlenecks for key supplies like semiconductors that have impacted prices of goods such as autos.
“Inflation is clearly a great concern to Americans, and it really needs to be addressed,” she said, adding, “Certainly it’s not acceptable to stay at current levels.” However, Yellen said most Americans overlook the problems that were avoided thanks to massive government aid, which underpinned a rapid recovery in employment after millions of jobs were lost at the start of the pandemic. “President Biden worked with Congress to put in place the American Rescue Plan to shield households and businesses from those adverse consequences.”
In contrast, the US economy saw a “very slow recovery” following the 2008 financial crisis, when thousands of American families lost their homes. Government aid in the past two years prevented evictions, helped “enormously” to prevent hunger in children, and now “we have a very strong job market, very low unemployment, (and) households feel good about their current financial circumstances,” Yellen said. But she cautioned, “the pandemic isn’t over-it’s still with us,” and state, local and national authorities will need to continue to provide support to get the economy “back to normal.” —AFP