WASHINGTON — The Biden administration acknowledged Tuesday that it was wrong to downplay the threat of rising inflation last year as the White House works to combat rising consumer prices that have hampered Joe Biden’s presidency.
“I think I was wrong then about the path that inflation would take,” Treasury Secretary Janet Yellen said in an interview on CNN.
Yellen in March 2021 said inflation posed only a “small risk.” Two months later, she said she didn’t anticipate inflation would “be a problem.” Earlier that spring, Biden signed his $1.9 trillion COVID-19 rescue plan into a law, providing a boost in spending that his critics blame for accelerating inflation.
“As I mentioned, there have been unanticipated and large shocks to the economy that boosted energy and food prices, and supply bottlenecks, that have affected our economy badly that I, at the time, didn’t fully understand,” Yellen told CNN. “But we recognize that now.”
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The secretary’s admission is the most direct concession yet from the White House that officials failed to grasp the scale of inflation that would come as the US recovered from the coronavirus pandemic. The administration later predicted the rise in consumer prices would be temporary.
With inflation at a 40-year high, Biden met Tuesday with Federal Reserve Chairman Jerome Powell and promised to give him the space to tackle surging consumer prices.
“My plan to address inflation starts with a simple proposition: Respect the Fed. Respect the Fed’s independence,” Biden said in brief remarks ahead of the Oval Office meeting.
Biden this month called tackling inflation his “top domestic priority.” Biden and Democrats face major headwinds to maintain control of Congress during November’s midterm elections as as result of the price rises that have made many consumers increasingly anxious.
The Consumer Price Index increased 8.3% annually in April, slightly lower than the 8.5% in March, as a drop in gasoline prices offset a continuing run-up in food, rent and other costs. The average price for gasoline Tuesday hit a record $4.62 per gallon, according to AAA, about $1.50 more than drivers were paying last Memorial Day weekend.
More:Soaring inflation slowed in April. Will price-weary shoppers get a bit of relief?
The Federal Reserve earlier this month raised its key short-term interest rate by a half percentage point. The Fed was created by Congress as an independent agency, though the members of its Board of Governors, including the Fed chairman, are appointed by the president.
Some economists fear a rising risk of a recession as higher-interest rates prompt consumers to curb their spending.
Brian Deese, director of Biden’s National Economic Council, argued the US is “uniquely well positioned” so that steps targeting inflation won’t come at the expense of newly added jobs. The unemployment rate fell to 3.6% in April.
“We can actually take on inflation without having to sacrifice all of those gains,” he told reporters.
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The meeting, which came at Biden’s invitation, was his first with Powell since the president nominated him to a second term in November as head of the Federal Reserve and their third meeting overall. Powell was confirmed by Congress earlier this month as chair of the central bank and he was sworn in last week. Yellen and Deese also attended.
The central bank has also said it will begin shrinking its $9 trillion in bond holdings next month, a strategy that will nudge long-term interest rates higher.
Other obstacles to fighting inflation, such as Russia’s war in Ukraine and supply-chain issues, remain outside the control of the central bank.
More:Biden calls inflation his top domestic priority, blaming Republicans for lacking a plan
Biden’s hands-off approach with the Federal Reserve differs from that of former President Donald Trump, who often railed against the Federal Reserve, oftentimes publicly calling on Powell – whom he nominated in 2017 – to cut interest rates to boost the nation’s economy. Former Presidents Barack Obama, George W. Bush and Bill Clinton also avoided confrontations with the Fed.
Contributor: Paul Davidson
Reach Joey Garrison on Twitter @joeygarrison.