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Treasury's Yellen: Biden stimulus at most a 'small contributor' to inflation

EconomyDec 01, 2021 02:51PM ET
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© Reuters. FILE PHOTO: reasury Secretary Janet Yellen pauses while testifying before a Senate Banking Committee hybrid hearing on oversight of the Treasury Department and the Federal Reserve on Capitol Hill in Washington, U.S., November 30, 2021. REUTERS/Elizabeth F

By Andrea Shalal and David Lawder

WASHINGTON (Reuters) - U.S. President Joe Biden's $1.9 trillion stimulus package in March contributed to stronger demand but is only a small factor in current higher rates of inflation, U.S. Treasury Secretary Janet Yellen told lawmakers on Wednesday.

Yellen told the House Financial Services Committee that the stimulus package clearly boosted demand but said it was not a "fair assumption" to say it overshot the need and fueled current spikes in inflation.

"It's certainly true that the American Rescue Plan put money in people's pockets ... and contributed to strong demand in the U.S. economy, but if you look at the amount of inflation that we have, and its causes, that is at most a small contributor," she said.

High inflation, now running at more than twice the Federal Reserve's flexible target of 2% annually, is expected to ease in the second half of 2022, Fed Chair Jerome Powell told lawmakers at Wednesday's hearing.

Yellen, grilled by Republican lawmakers about the inflationary impact of Biden's response, insisted there was a "very good reason" to proceed with the stimulus package to deal with a shortage of demand that could have resulted in long-lasting joblessness and high unemployment.

"It's been successful," she said. "It did boost demand, and that is one of several factors that are involved in inflation."

Yellen said the main driver of inflation was the COVID-19 pandemic and its impact in diverting demand away from services and "massively" toward goods, resulting in supply chain problems as well as a lasting effect on labor supply.

She said the pandemic had delivered an "unusual shock" to the workforce, and concerns about health issues were keeping many low-income workers from returning to their jobs, but that should recede as the pandemic was brought under control.

Biden's plan for $1.75 trillion in further social and climate spending over the next decade was a small amount relative to the size of the U.S. economy, was paid for, and would lead to improvements that lowered deficits, Yellen said.

"It puts in place investments that will continue to bring down deficits," she said. "It will improve the supply side of the economy, which is, in the long run, a factor that will tend to mitigate ongoing inflationary pressures."

Yellen sparred for a second day with Republican lawmakers who cited a Congressional Budget Office estimate the "Build Back Better" legislation would add $367 billion to U.S. deficits over a decade.

She stuck to her argument that the CBO estimate does not include the effects of increased Internal Revenue Service enforcement, which the Biden administration has estimated would boost revenues by $400 billion over a decade.

Treasury's Yellen: Biden stimulus at most a 'small contributor' to inflation
 

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Comments (7)
Benjamin McIntire
Benjamin McIntire Dec 01, 2021 11:38PM ET
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Hehe this is SURE to trigger some conservative snowflakes lmfao
Scott Wolfe
Scott Wolfe Dec 01, 2021 3:37PM ET
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Yellen an Pelosi have both been telling us they don't see inflation as a problem. Now apparently it is from covid. All lies. They are tearing this country down as planned.
Michael Mcdonough
Michael Mcdonough Dec 01, 2021 2:35PM ET
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At end of day a real lightweight..wow..a reputation Much Larger than warranted..as history will show..
James Pattison
James Pattison Dec 01, 2021 1:10PM ET
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I dont trust her as far as i can throw her…
Dyan Widya Kusuma
Dyan Widya Kusuma Dec 01, 2021 12:36PM ET
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only Focus on 10 yield Bond and Maintain ur currency of US, for Better inflation, please US need some recovery to get back the power
Oldfashioned Owl
Oldfashioned Owl Dec 01, 2021 12:00PM ET
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Is there really no way to get rid of politicians & still exercise democracy or some upgraded form of it?
Matt Brackley
Matt Brackley Dec 01, 2021 11:59AM ET
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oh and the deliberate crippling of supply chain. who believes this? can they find a Vax for stupid?
 
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