Yellen: Inflation no longer temporary
WASHINGTON — Treasury Secretary Janet Yellen on Thursday said she believed it is time to stop characterizing inflation as temporary and suggested that the omicron variant of the coronavirus could prolong the problem of rising prices.
Yellen said that over the summer it appeared that the pandemic was subsiding and the economy would soon normalize. The spread of new variants, she said, has changed that calculus.
“Now the new variant, the omicron variant, the pandemic could be with us for quite some time and hopefully not completely stifling economic activity but affecting our behavior in ways that contribute to inflation,” Yellen said, speaking at an event sponsored by Reuters.
Yellen’s remarks echoed those of Federal Reserve Chair Jerome Powell, who said earlier this week that inflation was more than a short-term issue.
“I am ready to retire the word transitory,” Yellen said. “I can agree that that hasn’t been an apt description of what we are dealing with.”
Yellen said it was too soon to say what impact omicron would have on the economy. It could further snarl supply chains and fuel inflation, she noted, but if it dampened economic growth, it could blunt price increases. She warned, however, that it could cause “significant problems.”
“We’re very uncertain at this point just how significant a threat it’s going to be,” Yellen said. “Hopefully it’s not something that’s going to slow economic growth significantly.”
Yellen, a former Fed chair, said the central bank was committed to using its tools to contain inflation but said there was little it could do to ease clogged supply chains. She said Powell’s suggestion this week that the Fed would consider speeding up its plan to withdraw financial support from the economy “makes sense.”
“What we don’t want to have develop is a wage-price spiral, in which inflation becomes its own self-reinforcing kind of phenomenon that would become chronic in the U.S. economy, something endemic,” Yellen said.
Her comments came as more Fed policymakers signaled growing concern that inflation, which the Fed targets to average 2% over time, is proving more durable than previously expected.