U.S. Treasury Secretary Janet Yellen acknowledged that while supply chain issues were the primary driver of inflation during the COVID-19 pandemic, government stimulus spending may have contributed “a little bit” to the rise in prices. In an interview with CNBC on Wednesday, Yellen discussed the economic factors during the pandemic and addressed a rare admission from Biden administration officials about the impact of their policies on inflation.
Yellen explained that the inflationary pressures were mainly caused by supply-side issues, such as shortages and disruptions in global supply chains, particularly those related to goods from China and other countries. However, she conceded that the large-scale stimulus spending enacted by the Biden administration could have played a role in fueling inflationary pressures, though she emphasized that these policies were essential to avoid long-term economic harm.
In March 2021, the Biden administration passed the $1.9 trillion American Rescue Plan Act, following over $3 trillion in relief spending under the Trump administration in 2020. These relief packages helped provide financial support to workers, paid rent, and delivered direct payments to Americans, boosting consumer spending amid the pandemic’s economic turmoil.
Also Read –Quad-Demic Impact: Flu, COVID, RSV, and Norovirus Challenge Healthcare Systems in US, UK
Yellen, who will leave office at the end of the month, reiterated her belief that the stimulus measures were crucial to preventing “economic scarring”—a term used to describe the long-term damage caused by widespread unemployment and business closures, as seen in past recessions.
Despite the challenges of inflation, Yellen said she remained optimistic about the U.S. economy’s trajectory, noting that inflation was on a “downward path” and that the labor market was cooling but still strong. However, she acknowledged the uncertainty surrounding future economic policies, particularly with President Trump preparing to take office on January 20, 2025. This uncertainty, combined with expectations of prolonged higher interest rates, has influenced Treasury debt yields.
Yellen also discussed the importance of maintaining a sustainable fiscal policy, pointing out that failure to modernize the IRS and extending Trump-era tax cuts without offsetting measures could add significantly to the federal deficit. She expressed concern that proposed tax cuts for high earners and small businesses without corresponding revenue increases could add up to $5 trillion to the deficit over the next decade.
Looking ahead, Yellen emphasized the need for fiscal responsibility and suggested focusing on middle-class tax cuts and exploring additional ways to generate revenue. Regarding proposed budgetary savings of $2 trillion from Elon Musk’s non-governmental Department of Government Efficiency, Yellen expressed skepticism, citing limited room for cuts in discretionary spending and a lack of political will to reduce Social Security and Medicare spending.
