Yellen expects high inflation rates to be temporary

Treasury Secretary Janet Yellen said Thursday that she expects the current higher inflation rates will last for another several months but will be temporary.

“My judgment right now is that the recent inflation that we have seen will be temporary. It’s not something that’s endemic,” Yellen said at a hearing held by a House Appropriations subcommittee. “I expect it to last, however, for several more months, and to see high annual rates of inflation through the end of this year.”

The consumer price index, a closely watched measure of inflation, increased by 0.8 percent in April and 4.2 percent over a 12-month period, the fastest annual rate since 2008.

Republican lawmakers cite concerns about inflation as a reason why they are resistant to President Biden’s spending proposals. Larry Summers, a former top economic policy official during the Clinton and Obama administrations, has also raised concerns about inflation and suggested that some of the pressure could be relieved by paying for infrastructure legislation through repurposing funds from coronavirus relief laws — an option GOP lawmakers also support but the Biden administration has concerns about.

Yellen noted Thursday, as she predicted that elevated inflation would be temporary, that the pandemic caused major changes in spending patterns. The high inflation figure for April partially reflects that prices in some areas, such as for hotel rooms and airline tickets, fell dramatically last year but are now rebounding, she said.

“I think as the economy gets back on line, it’s going to be a bumpy process,” she said, adding that the U.S. government has tools to address inflation that it can use if needed.

Yellen also said that interest rates are very low and that most economists believe that low interest rates will persist.

Earlier this month, Yellen made comments suggesting that she thought interest rates may need to rise to prevent the economy from overheating. However, a short time later she said that she wasn’t predicting or recommending an interest-rate hike, just that the Federal Reserve can be relied upon if an inflation issue develops.