Yellen says inflation will be higher than Biden administration estimated this year
White House may raise inflation projections to 3% for year as consumer prices rise
Treasury Secretary Janet Yellen said Wednesday the White House will raise its inflation forecast for the year in its forthcoming midyear economic projections amid growing concerns about surging consumer prices.
The Biden administration had previously projected in February that inflation would reach 2% for the year – an estimate that, at the time, was in line with the Blue Chip Economic Forecast.
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"We're going to be doing a mid-session review and coming out with a new forecast," Yellen said while testifying before the Senate Finance Committee. "Certainly for this year inflation will be higher than that."
It's unclear what the new estimates will look like, but Yellen said over the weekend, following a meeting of G-7 finance ministers in London, that inflation could be around 3% "at least on a year-over-year basis."
The Labor Department announced last week that the Consumer Price Index (CPI) surged 5% in May from a year prior, the fastest year-over-year jump since 2008. Excluding the volatile food and energy data, core inflation rose 3.8% from a year earlier, the quickest since June 1992.
The data exacerbated growing concerns among some Republican lawmakers and other critics that the U.S. was poised for runaway growth and inflation due to unprecedented levels of government stimulus. In addition to signing a $1.9 trillion relief package in March, President Biden is urging Congress to approve roughly $4 trillion in new federal spending that would go toward dramatically bolstering the social safety net, rebuilding the nation's infrastructure and investing billions in green energy initiatives.
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But Yellen maintained that the spike in consumer prices is due to pent-up demand as the economy reopens from the pandemic and bottlenecks in the supply chain.
"We're monitoring inflation very carefully and take it very seriously. No one wants to return to the bad high inflation days of the '70s," she said.
Federal Reserve Chairman Jerome Powell has repeatedly downplayed concerns about inflation and has pledged to maintain monetary support for the economy until the U.S. reaches full employment and inflation hits a sustainable level above 2% — neither of which he expects to happen in 2021.
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"It seems unlikely, frankly, that we would see inflation moving up in a persistent way that would actually move inflation expectations up while there was still significant slack in the labor market," he told reporters in April following the central bank's policy-setting meeting. "I won't say that it's impossible, but it seems unlikely."