Yellen: ‘Transitory’ wasn’t the best way to describe inflation

Treasury Secretary Janet Yellen acknowledged Tuesday that she and Federal Reserve

Chair Jerome Powell “could have used a better word” than “transitory” when describing the expected run of inflation in the U.S. economy. She added that she was hopeful it would soon be on the decline.

“I do expect inflation to remain high although I very much hope that it will be coming down now,” Yellen told the Senate Finance Committee during a hearing on the agency’s latest budget request. “I think that bringing inflation down should be our number one priority.”

The Federal Reserve and Treasury Department have been increasingly blamed by legislators and the public for allowing inflation to reach record highs — notably an 8.3% leap in consumer prices over the past year.

She told CNN last week that she didn’t fully understand the impact that unanticipated shocks and supply bottlenecks would have on the economy.

“Look, I think I was wrong then about the path that inflation would take,” she said.

The hearing was an chance for lawmakers to press Yellen on the causes for inflation, when it may decline and the administration’s plans to reduce the pain on Americans.

“We now are entering a period of transition from one of historic recovery to one that can be marked by stable and steady growth,” she said. “Making this shift is a central piece of the president’s plan to get inflation under control without sacrificing ... economic gains we’ve made.”

As for earlier pronouncements by Yellen and Powell that the U.S. inflation problem was transitory, Yellen allowed, “Both of us could have used a better word than transitory. There’s no question that we have huge inflation pressures. Inflation is really our top economic problem at this point.”

Inflation has shown signs of moderating but is likely to remain far above the Fed’s 2% target through the end of 2022. The Congressional Budget Office released an economic outlook this month saying high inflation will persist into next year, likely causing the federal government to pay higher interest rates on its debt.

The nonpartisan agency expects the consumer price index to rise 6.1% this year and 3.1% in 2023. This forecast suggests that inflation will slow from current annual levels of 8.3%, yet it would still be dramatically above a long-term baseline of 2.3%.

Yellen was asked about her support of last year’s American Rescue Plan relief package, and whether it worsened price spikes. Because inflation is high globally, she said, the package can’t be blamed for the bulk of U.S. inflation.