“There have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have impacted our economy badly that at the time I didn’t fully understand,” said U.S. Treasury Secretary Janet Yellen this week regarding statements she made last year.
Back then, she said there was a “small risk” of inflation and that she did not “anticipate that its going to be a problem.” Yet, over the 12-month period ending this April, the Consumer Price Index rose by 8.3% before seasonal adjustment.
Yellen told CNN’s Wolf Blitzer that she was “wrong then about um, the path that inflation, um, would take,” this year.
While supply chain issues related to the COVID-19 pandemic could have been expected in 2021, Russia’s invasion of Ukraine has also put pressure on the supply chain and world economy since it began in February. President Joe Biden announced Thursday new measures to make Russia a “global financial pariah,” with sanctions in an effort to put a stop to the invasion.
Now, the Federal Reserve Bank is working to bring inflation down through interest rate hikes. When these rates increase, it becomes harder to borrow money and the economy slows down. This slowdown is expected to regulate the price of goods.
“It’s up to them to decide what to do,” said Yellen of the Federal Reserve Bank, or Fed. She said she would not comment on the Fed’s policies and that Fed Chair Jerome Powell believes they can bring inflation down.
As of Wednesday, the Fed had already enacted two rate increases totaling 75 basis points, including a 50 basis point increase in May, according to CNBC. A basis point equals 0.01%, the outlet explained.
San Francisco Federal Reserve President Mary Daly said Wednesday she backs raising interest rates until inflation comes down to a reasonable level. Federal Reserve Vice Chair Lael Brainard said Thursday she also expects the central bank to continue rate hikes until inflation comes down, CNBC reported.
“Right now, it’s very hard to see the case for a pause,” she told the outlet. “We’ve still got a lot of work to do to get inflation down to our 2% target.”
This month, the Fed also began “reducing the asset holdings on its nearly $9 trillion balance sheet,” said CNBC. “By September, the balance sheet reduction will be as much as $95 billion a month,” which Brainard said will equate to two or three more rate hikes.
Biden also said this week that he is relying on the Fed to bring down inflation.
Yellen told Blitzer the Biden administration is working to lower the costs of prescription drugs, healthcare costs and utility bills as additional ways to help tame inflation.
Though inflation remains high – and gas prices climb higher – there are signs that inflation could slow. For example, the Consumer Price Index increased less in April than it did in March.
“There is more work to do and tackling inflation is my top economic priority,” Biden said last week. “My plan is to give The Federal Reserve the independence it needs to do its job, lower families’ costs, and lower the federal deficit.”