US Treasury’s Yellen Says Inflation Causes ‘Global, Not Local,’ US Not Destined for Recession

As the value of the US dollar continues to decline alongside unemployment, many economic observers have fretted that a wage-price spiral is all but inevitable, which would strangle economic growth as in-demand workers demand higher wages to compensate for higher prices, driving prices still higher.

Speaking to reporter George Stephanopoulos on ABC’s “The Week” on Sunday, US Treasury Secretary Janet Yellen said inflation “is unacceptably high," but that a recession is not "at all inevitable" as the administration struggles to respond to it.

"I expect the economy to slow," Yellen said. "It's been growing at a very rapid rate, as the economy, as the labor market, has recovered and we have reached full employment. It's natural now that we expect a transition to steady and stable growth, but I don't think a recession is at all inevitable."

The Treasury chief, who is a former chairperson of the US’ central bank, the Federal Reserve, said that it was the “top priority” of US President Joe Biden and the Fed’s present chairperson, Jerome Powell, to bring down inflation, which has continued to increase past its 40-year high earlier this year. The Bureau of Labor Statistics’ May report on consumer prices found an 8.6% average increase over the previous year, or 6%, if energy and food costs are removed, a metric called “core inflation.”

Stephanopoulos pressed Yellen on the numbers, asking, “You say that inflation is a global problem, and it certainly is, but how do you explain the fact that Europe’s core inflation last month was under 4% and the U.S. was at 6%?”

“So, energy prices spillover is really half of inflation, food and energy and the spillover is because energy is an important input into almost everything into the economy,” the Treasury chief replied. “It is true that we’ve had core inflation over and above that, that is too high and the [Federal Reserve] will take steps to bring it down. President Biden believes there are other things the administration can do to support what the Fed will do.”

Last week, the Fed Board of Governors increased interest rates by 75 base points - their biggest hike in nearly 30 years - on the heels of the BLS report. That followed a 50-base-point increase the month prior, which had little effect. However, many on Wall Street expect the Fed’s actions to not just blunt inflation, but to trigger a recession. Even Powell has referred to the central bank’s goal as a “soft or soft-ish landing,” admitting the difficulty of blunting inflation without also blunting economic growth.

"You say it's not inevitable, but I guess the question is: Is it likely?" Stephanopoulos pressed Yellen on Sunday.

She asserted that “consumer spending remains very strong,” although acknowledging that in reality, consumer spending has decreased. Yellen also said that “bank balances are high” and “the labor market is very strong, arguably the strongest of the post-war period."

Yellen repeated Biden’s excuse for high inflation: oil prices have increased, driven largely by Russia’s special operation in Ukraine that began in February 2022 - the so-called “Putin price hike.” However, inflation was already a problem economists were worried about in the fall of 2021, and it isn’t so much Russia’s operation to neutralize Ukraine as a NATO springboard that’s driving up oil prices as it is Biden’s total boycott of imports of Russian oil and gas and the European Union’s attempts to follow suit. Moscow’s fossil fuel sales income has doubled since February and its oil exports increased by 12% in the first five months of 2022, Russian Deputy Prime Minister Alexander Novak said on Friday.

In addition, US lawmakers have pointed to oil and gas companies gouging prices amid the shortages as a major problem, with the US House of Representatives passing a bill last month to crack down on the practice. However, that, too, is not a new issue, as economists last year noted price gouging by retailers was a big part of increasing prices on other goods amid shortages and delays created by a variety of pandemic lockdown-related factors, including Covid outbreaks in China.