US Treasury Secretary admits failure to predict inflation risk

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US Treasury Secretary Janet Yellen confessed on CNN’s The Situation Room with Wolf Blitzer that she failed to predict how long high inflation would plague US citizens and consumers. Yellen, in 2021, had stated that inflation posed the US a minor risk. However, in her latest comments, she considered the pandemic and the war in Europe as central reasons for the spike in energy and food prices.

"As I mentioned, there have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I -- at the time -- didn't fully understand, but we recognize that now," said the official.

Yellen was not the only one to consider inflation as a transitory side effect of the economy returning to normal in the post-pandemic world. There are several White house officials that adhered to this argument by pointing to disruptions of supply chains and demand exceeding supply to explain the causes of inflation, which in their perspective, would go back to normal once these issues are resolved.

Months later, inflation is nearing a 40-year high. Recent indicators showed that the inflation had peaked in March, reaching a four-decade high, with economists warning that the economy will take substantial time before inflations return to healthy levels. The White House had planned to launch a month-long effort to focus on the economy.

US President Joe Biden had meetings in the Oval office that brought him together with Federal Reserve Chairman Jerome Powell, and Yellen. Subsequently, Biden announced that he supported the Fed’s decision to handle the situation how they see fit.

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A Treasury spokesperson told CNN that "the Secretary [Yellen] was pointing out that there have been shocks to the economy that have exacerbated inflationary pressures which couldn't have been foreseen 18 months ago, including Russia's decision to invade Ukraine, multiple successive variants of Covid, and lockdowns in China," the spokesperson said. Furthermore, there has been historic growth and a record job creation through which the purpose is to allow for a transition to steady and stable growth and a return to healthy inflation rates.

The Powell-led Fed had been chastised for taking too long to combat high inflation by removing emergency stimulus and raising interest rates. The Fed, on the other hand, had promised to hike interest rates quickly and did so earlier this month for the first time since 2000. The Federal Reserve of the United States has hinted at more aggressive rate hikes in the months ahead.