Treasury Secretary Janet Yellen said in a CNBC interview Wednesday that the Biden administration's stimulus spending to keep the economy afloat during the coronavirus pandemic may have contributed slightly to inflation.
Yellen said supply chain issues and shortages were the main factors driving up prices during the pandemic, but acknowledged that stimulus spending may have played a role as well.
“It may have contributed some to inflation, but by and large, inflation is a supply-side phenomenon,” Yellen said, in a rare concession from a Biden administration official about the role of policy in driving up prices.
The Treasury secretary, who leaves office later this month, said the spending was needed to prevent the scars seen after previous recessions, when business closures and layoffs left people unemployed for long periods of time and ultimately alienated them from the workforce. He said that he continues to have confidence in this.
The main reason for the price increase was a shortage of goods from China and other countries that were also shut down, leaving automakers and others with a shortage of semiconductors and other parts to make their products.
Yellen said there had been no significant progress in lowering prices in recent months, but she remained confident the U.S. was on a “downward trajectory.”
He said the labor market is cool but in good shape and recent U.S. economic data suggests interest rates may remain higher than people expected.
But he said there is also growing uncertainty about the future of economic policy as President-elect Donald Trump prepares to take office on January 20.
He said the U.S. economy as a whole is doing very well, with consumer spending and investment strong despite rising interest rates.
But he said it was imperative to put fiscal policy on a sustainable path, saying efforts to derail the Internal Revenue Service's modernization efforts would result in an $800 billion budget deficit. He added that there is a possibility.
