Janet Yellen admits misjudging the path of US inflation last year

There have been unexpected large shocks to the economy, US Treasury Secretary says

US Treasury Secretary Janet Yellen says she made an incorrect call last year in predicting that elevated inflation wouldn’t pose a continuing problem. AFP

US Treasury Secretary Janet Yellen offered her most direct admission yet that she made an incorrect call last year in predicting that elevated inflation would not pose a continuing problem.

“I was wrong about the path inflation would take,” Ms Yellen said in an interview that was aired on Tuesday on CNN.

“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 at the time I didn’t fully understand.”

New variants of Covid-19, lockdowns in China and Russia’s war on Ukraine have all imposed shocks on the economy, the Treasury chief said after attending a meeting at the White House with US President Joe Biden and Federal Reserve chair Jerome Powell to address inflation.

Mr Biden said earlier on Tuesday that his role as president is to give the Fed “the space they need to do their job”.

“I’m not going to interfere with their critically important work,” he said.

Ms Yellen said that the Fed was taking steps to stem inflation.

Public support for Mr Biden on handling the economy has cratered with the surge in the cost of living. Consumer prices in April rose 8.3 per cent from a year before, close to the 40-year high reached in March.

Ms Yellen highlighted how well the economy has performed in other respects, particularly with regard to employment.

But she also made clear that she did not expect the same robust pace of growth and job creation the US has enjoyed during the recovery from the crisis.

“Now we are in a period of transition,” she said. “We are not expecting to see the same kinds of job gains, monthly job gains or growth figures going forward. We are looking at steady and stable growth and bringing inflation down.”

Asked if the worst of the inflation increase was past, Ms Yellen said it was encouraging that core inflation — a measure that strips out energy and food prices in an effort to show the trend in underlying inflation — had dropped.

The core gauge of consumer prices eased to a 6.2 per cent gain in the year through April and is expected to continue slowing in future months.

Still, Ms Yellen said European countries had recently taken steps to limit their imports of Russian oil — a move that has caused global crude prices to rise.

“We can’t rule out further shocks,” she said.