Politics Yellen confident rising inflation won't be 'permanent'
Deutsche Bank issues dire economic warning for America
If the U.S. economy descends into an inflation spiral like that experienced after World War II, we could be on the brink of excruciating economic pain. However, the profligate spending by Congress is only part of the problem.According to Deutsche Bank, "Monetary stimulus has been equally breath-taking. In numerical terms, the Fed's balance sheet has almost doubled during the pandemic to nearly $8tn. That compares with the 2008 crisis when it only increased by a little more than $1t, and then increased another $2tn in the subsequent six years.
Treasury Secretary Janet Yellen sought to assure lawmakers Wednesday that historically high inflation would cool off as the U.S. economy continues to rebound from COVID-19.
Testifying before the Senate Finance Committee, Yellen said that while she was keeping a close eye on rising inflation, she doesn't "anticipate that it will be permanent."
Yellen reiterated what she, Federal Reserve Chairman Jerome Powell, and many economists have said about the recent surge in prices from pandemic lows. She explained that annual measures of inflation are reflecting the sharp climb in prices from lows they hit during the pandemic and that short-term supply constraints are also forcing producers and shippers to raise prices.
Price spike triggers new political debate on inflation
New data showing a higher than expected May jump in inflation underscored how a bumpy recovery from the coronavirus recession poses political challenges for President Biden and the Federal Reserve.The consumer price index (CPI) rose 5 percent in the year leading into May, the Labor Department reported Thursday, marking the fastest annual increase since August 2008 and slightly exceeding the expectations of economists. The CPI minus food and energy prices, which are more volatile, also rose 3.
"Partly what we're seeing is that prices, they just collapsed at the onset of the pandemic in the service sector," Yellen said.
"As the economy's opening back up again, prices are now moving back towards normal levels in leisure, hospitality, airfares and the like. In most cases, prices remain below pre-pandemic levels, but they're rising and that's some of what's going on here, but there's also bottlenecks and firms are clearly having difficulty hiring workers."
While inflation was widely expected to rise as the retreat of the pandemic fueled more demand for goods and services, the faster-than-projected rate of price increases along with several tepid monthly job gains has prompted more skepticism of Yellen and Powell's approach.
Top US regulators pledge to seek reforms for money markets
WASHINGTON (AP) — Top regulators pledged Friday to push reforms in a key corner of U.S. financial markets that the Federal Reserve and Treasury had to rush to support after it was roiled during the coronavirus outbreak in the spring of 2020. Members of the Financial Stability Oversight Council discussed the reforms aimed at the so-called short-term funding markets, which include money market mutual funds holding trillions of dollars. TheMembers of the Financial Stability Oversight Council discussed the reforms aimed at the so-called short-term funding markets, which include money market mutual funds holding trillions of dollars.
Video: Yellen: We can expect some short-term inflation (CNBC)
Republican lawmakers and inflation-wary analysts argue that trillions in proposed spending from the Biden administration could overheat the U.S. economy and spur rapid inflation. They've also expressed concerns that the Fed's commitment to keeping interest rates near zero percent through the end of 2022 and a lack of clear end date on its monthly bond purchases could do the same.
Sen. Chuck Grassley (R-Iowa) criticized Yellen's "nonchalant" view on inflation and argued that the U.S. risked falling into a dangerous inflationary spiral akin to the rapid price increases of the 1970s.
"Isn't it incumbent upon the president, the U.S. secretary of Treasury, and even us in the Congress to take inflationary risk seriously by pursuing responsible fiscal policies, not just expecting the Fed to clean up a mess after the fact?" Grassley asked.
Yellen: administration is watching inflation closely
WASHINGTON (AP) — Treasury Secretary Janet Yellen assured Congress that the recent jump in inflation is being monitored very carefully by the Biden administration, but said again that any increase will prove temporary. Testifying about Biden's $6 trillion budget proposal before the Senate Finance Committee, Yellen was asked Wednesday by Republican lawmakers about recent sharp gains in inflation, including a 5% rise in consumer prices for the 12 months ending in May, the biggest jump since 2008. Yellen said no one wants to relive the double-digit inflation of the 1970s and that the administration is taking the recent inflation “very seriously.
Sen. Mike Crapo (Idaho), the ranking Republican on the Finance Committee, raised fears that even a brief jump in inflation could raise long-term inflation expectations. When financial markets and consumers expect more inflation in the future, inflation itself - along with borrowing costs - can rise in anticipation.
"If inflation expectations become unanchored, which no one can credibly claim cannot happen, the resulting increased interest rates can turn federal debt service costs into budget busters," Crapo said.
Yellen, who chaired the Fed board from 2014-18, countered that inflation expectations "by most measures" are well anchored and that a wide range of economic forecasters see inflation easing once the economy hits a steadier pace.
"I believe our economy is on track to get back to a more normal operation, in that inflation will decline over time, but we're going to monitor it very carefully."
Powell says pickup in job gains likely this fall .
Federal Reserve Chairman Jerome Powell told lawmakers Tuesday that the U.S. remains on track for a strong rebound from the coronavirus recession despite several speed bumps that have weighed on the recovery.Testifying before a special House COVID-19 subcommittee, Powell expressed confidence that rising inflation and lackluster job growth would both turn around as the global economy smoothed out the kinks of reopening."I think we'll see strongTestifying before a special House COVID-19 subcommittee, Powell expressed confidence that rising inflation and lackluster job growth would both turn around as the global economy smoothed out the kinks of reopening.