Jun 1, 2022 - Economy

Yellen: "I was wrong about the path inflation would take"

US Treasury Secretary Janet Yellen speaks to journalists  on May 18, 2022 in Koenigswinter near Bonn, western Germany.

U.S. Treasury Secretary Janet Yellen during a May 18 news conference near Bonn, Germany. Photo: Ina Fassbender /AFP via Getty Images

U.S. Treasury Secretary Janet Yellen said in an interview with CNN that aired Tuesday evening that her assessment last year that inflation posed a short-term threat during the pandemic was "wrong."

What she's saying: "I was wrong about the path inflation would take," Yellen told CNN's Wolf Blitzer on "The Situation Room."

  • "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. But we recognize that now," Yellen said.
  • "The shocks to the economy have continued, but inflation is the number one concern for President Biden," she added.

Context: Yellen told ABC News in March 2021 that there was a "small risk" of inflation, but it was "manageable," as she spoke of Biden's $1.9 trillion COVID relief package addressing the economic effects of the pandemic.

  • White House economists, the Federal Reserve and private forecasters also believed at the time that the 2021 inflation spike was tied to the swift economic rebound after COVID-19 vaccinations and estimated it would soon ease, but it continued and worsened after Russian forces invaded Ukraine, the Financial Times notes.

Between the lines: In her candid confession, Yellen sounded like an academic economist revising her views in light of new data.

  • They weren't the kind of pronouncements mouthed by previous Treasury secretaries — savvy and deeply political operators who rarely gave their political opponents, or the markets, any hint that they weren't omniscient.

A Treasury official quickly reached out to downplay the comments:

  • "The Secretary was pointing out that there have been shocks to the economy that have exacerbated inflationary pressures which couldn’t have been foreseen 18 months ago, including Russia’s decision to invade Ukraine, multiple successive variants of COVID, and lockdowns in China."

The big picture: Yellen was with Biden as he held a meeting on inflation with Federal Reserve Jerome Powell at the White House earlier on Tuesday.

  • "Chair Powell and other members of the Fed have noted at this moment they have been laser-focused on addressing inflation, like I am," said Biden, who's vowed to respect the Fed's political independence.

By the numbers: The Fed has raised its main interest rate to a range of 0.75% to 1% and indicated more monetary tightening is on the way as it aims to slow the economy to bring inflation down.

Editor's note: This article has been updated with new details throughout.

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