WASHINGTON: US Treasury Secretary Janet Yellen (pix) faces a gauntlet of tough questions about how the Biden administration has handled the economy in Congress this week, after admitting she was “wrong” about the path inflation would take.
Yellen testifies to the Senate Finance Committee today and the House of Representatives Ways and Means Committee tomorrow, thrusting one of the most experienced, yet least political of Joe Biden’s advisers into the hot seat as Republicans hammer the president over inflation that has reached 40-year highs.
As Treasury secretary, Yellen, 75, was a key voice predicting price rises would be “transitory” through 2021 even as some analysts and investors warned the US economy could overheat. As Federal Reserve (Fed) chair, she was criticised in 2017 for the opposite – cooling the economy to fight inflation that never came.
Congressional Republicans plan to grill Yellen on her faulty forecast, and the role the US$1.9 trillion (RM8.3 trillion) Biden-backed American Rescue Plan had in driving up prices, aides tell Reuters. They would also like to hear her abandon Biden’s bedrock plan to raise taxes on US companies and seek more federal funding that would fuel further inflation, Representative Kevin Brady, the top Republican on the Ways and Means Committee, told reporters.
Unanticipated, large shocks including Russia’s invasion of Ukraine and recent COVID-19 lockdowns in China have exacerbated the tightness in supply that has pushed up energy and goods prices in unexpected ways, Yellen and the White House argue. The “unprecedented” injection of financial assistance also contributed about 3 percentage points to inflation by the fourth quarter of 2021, the San Francisco Federal Reserve Bank estimates.
While Yellen publicly retired the term “transitory” in December, she continued to reassure White House officials privately early this year that price pressures would likely ease in 2022, said one person involved in the talks.
Frustration is high in the White House over a gulf between the strength of the US economy's recovery from coronavirus shutdowns, with a strong labour market and record company profits, and Biden’s low poll numbers.
While Yellen has no plans and is under no pressure to retire, conversations about who may replace her have percolated through the administration in recent months, with Commerce Secretary Gina Raimondo and former White House Covid-19 coordinator Jeff Zients topping the list of possible successors.
On the Hill, Yellen plans to repeat the White House’s mantra that inflation is “the administration’s highest priority”, a Treasury official said and that the “the unparalleled strength of America’s recovery enables our country to address global challenges like inflation and Russia’s attack on Ukraine from a position of strength”.
Administration officials concede Yellen’s frank admission during a May 31 television interview that she failed to anticipate inflation's path was politically unwise, but say the Treasury secretary remains one of the most revered economic voices close to Biden.
She should choose her words more carefully on the Hill this week, some analysts say.
“She was the Fed chair and in that position you watch every single word you say,” said Harry Broadman, a former chief of staff of the White House Council of Economic Advisers and managing director at Berkeley Research Group.
In another development, US Trade Representative Katherine Tai said yesterday fighting inflation is a more complicated issue than can be addressed with a “singular focus” on China tariffs, and that it was important to bring a “thoughtful, strategic, deliberate” approach to the US-Chinese trade relationship.
Tai, in remarks to the Washington International Trade Association, said inflation was “scary” and hurting Americans’ pocketbooks but was a complicated issue with many causes.
“The economy is large and there are a lot of pressure points and levers in that economy,” she said. “If we’re going to take on an issue like inflation, and given the seriousness that it requires, then our approach to tools for mitigating and addressing that inflation need to respect that it is a more complicated issue than just tariffs at the border.”
Tai’s remarks indicated that a debate within President Joe Biden’s administration was continuing over whether to cut some US “Section 301” duties on hundreds of billions of dollars of Chinese imports of up to 25% imposed by former president Donald Trump.
Tai, referring to US ties with China, said it was important for the Biden administration “to bring a thoughtful, strategic, deliberate approach to how we manage this relationship overall”. Among the administration’s most important responsibilities “is to figure out how to get this relationship right – and nothing about this relationship is easy,” she added.
Tai has been at odds with Yellen over the future of the Section 301 tariffs, with Yellen arguing that they hurt US consumers and businesses and that they could have some effect on reducing prices.
Tai said the Biden administration over the next two weeks would begin defining its vision for another key trade initiative with 13 Asian countries. She added that the Indo-Pacific Economic Framework talks need to be “holistic, extremely flexible, adaptable and really, really pragmatic”.
Tai said she hopes to have a more formalised convening of participating countries this summer, including at the trade minister level, to discuss the negotiating pillars of labour rights, high environmental standards, digital trade and supply chain resilience. – Reuters