GOP rips Yellen over sloppy inflation forecast
Congressional Republicans set fire to Treasury Secretary Janet Yellen this week during testimony before the Senate Finance Committee and House Ways and Means Committee on skyrocketing inflation. nearly 40 years as a result of the coronavirus pandemic.
The former Federal Reserve chair admitted last month that she was wrong about inflation, which could remain at high levels through 2023.
“Is there a risk of inflation? You said, ‘I think there’s a little risk,'” Sen. John Barrasso (R-Wyo) told Yellen during a Senate Finance Committee meeting on Tuesday, referring to comments that she made early last year.
“Given this, I wonder why Americans should trust your statements, rulings, and recommendations today.”
The ‘small’ and ‘manageable’ risk Yellen thought inflation posed last year turned out to be something far more serious, and she admitted the miscalculation in frank terms at the end of the month. of May.
“I think I was wrong then about the path inflation would take,” she told CNN at the time. “There have been unforeseen and significant shocks to the economy which have driven up energy and food prices, and supply bottlenecks which have severely affected our economy which I did not understand entirely at the time. But we recognize it now.
Republicans have argued that Democratic stimulus packages like the U.S. bailout, which extended stimulus passed under the Trump administration, were driven by this misunderstanding of inflation risk.
“I think there’s no doubt that last year’s $2 trillion bill overheated the economy, and that’s why we have the mess we have today,” said Senator John. Thune (RS.D.) in Yellen, echoing the sentiments of several other Senate Republicans.
The mood of GOP lawmakers in the lower house was no less castigating.
“As I listen to you here today, and look at what hasn’t been done by this administration, it’s really baffling in many ways whether the administration is deaf or oblivious or becoming conscious in this moment,” Darin LaHood (R-Ill.) said at a ways and means committee meeting on Wednesday.
LaHood pointed to criticism of US monetary policy made last year by Larry Summers, a Democratic economist who has become a favorite among conservatives for breaking the party line regarding the health of the economy during its recovery period. .
“I go back and look at what President Obama’s Treasury Secretary Larry Summers said, alerting the administration in February 2021 to the fear of this and what was going to happen, and why something wasn’t right. wasn’t done there,” he said. .
In May 2021, Summers warned of “very significant risks on the inflation side” and called President Biden’s fiscal stimulus “rather over the top”.
Further evidence of the fiscal exacerbation of inflation – which economists say was caused by supply chain problems and excess consumer demand that extends beyond the regulatory controls of policymakers governments – was provided by the San Francisco branch of the Federal Reserve in March with a research paper often cited by Republicans.
“Issues with global supply chains and changes in spending patterns due to the COVID-19 pandemic have pushed up inflation around the world. However, since the first half of 2021, inflation in the US United States has increasingly outpaced inflation in other developed countries.Estimates suggest that fiscal support measures designed to counter the severity of the economic effect of the pandemic may have contributed to this divergence by increasing inflation. by about 3 percentage points by the end of 2021,” the Fed document concluded.
Even Democratic Rep. Brian Higgins (NY) asked Yellen how the stimulus was affecting the economy.
“Do you subscribe or support the statement that because of what we had to do in the short term, we invested a lot of money in an economy that is 70% consumption, that we had too much money for too few goods? And to what extent is this the reason for the rate of inflation as it is today? ” He asked.
Yellen replied, “These expenditures have produced excellent rewards for Americans and at best contributed modestly to inflation.”
Democratic lawmakers have previously complained about the Federal Reserve, arguing that the central bank failed to recognize the risk of inflation sooner and was working to shrink its balance sheet and raise borrowing rates.
“I remember urging the Fed late last fall to say they would start having to raise those rates. I wish they had done it sooner,” Senator Mark said. Warner (D-Va.) during an interview in May.
The Fed raised its base interest rate in early May by 0.5 percentage points.
International economists have made similar remarks, challenging what the United Nations Department of Economic and Social Affairs (UN DESA) calls “ultra-loose monetary policies – pumping massive liquidity into the financial system.”
They also pointed to the Federal Reserve’s asset-buying program known as quantitative easing, which the bank only began rolling back last month.
“Central banks have relied heavily on unconventional monetary policy tools, particularly large-scale asset purchases to respond to the pandemic,” the UN agency wrote in February. These programs have “contributed to an underpricing of risk and sharp increases in asset prices. Major central banks now face the challenge of unwinding their massive stimulus programs without creating financial market turbulence and destabilizing global financial flows.
This is the kind of turmoil that the financial markets are currently experiencing.
Since the Fed’s first interest rate hike in May, the Dow Jones Industrial Average of major US stocks has fallen 3.5%, the S&P 500 has fallen more than 4.3% and the Nasdaq, very technological, fell by almost 7%. All three indices experienced high volatility during this period.