U.S. price inflation will remain high until the coronavirus pandemic is officially over, says Deputy Treasury Secretary Wally Adeyemo.
Speaking in an interview with CNBC‘s Hadley Gamble at the Adipec energy industry forum in Abu Dhabi on Tuesday, Adeyemo noted that President Joe Biden has tackled many issues but conceded that more work needs to be done.
“I think the president has done everything he can to make sure that we deal with the top issue that faces America, which is a pandemic that has killed hundreds of thousands of Americans and the president has successfully addressed this,” he stated. “But we have more work to do in terms of addressing the pandemic and until we fully address the pandemic we’re going to face high prices in our economy.”
Despite consumer prices hitting their highest levels in about 31 years, the Treasury official alluded to many of the gains achieved by the Biden administration, including a falling unemployment rate and a growing economy. Prices will “moderate as the pandemic moderates,” Adeyemo averred.
“Because of investments we’re making today the American economy will be in a position to grow and because of that, the president’s economic strategy will be successful,” Adeyemo added.
But is this a different stance on inflation than the one the administration had earlier this year?
Administration’s Evolving Views on Inflation
Although officials insist that inflation is transitory, the consensus in the White House is that surging prices will remain hot heading into 2022. But it was not always the standard opinion by policymakers.
In March, Treasury Secretary Janet Yellen told MSNBC that inflation concerns, particularly those stemming from Biden’s $1.9 trillion stimulus and relief package, were misplaced. Yellen predicted that higher inflation would not happen, downplaying many prognostications from economists and market analysts.
“I really don’t think that is going to happen. We had a 3.5 percent unemployment rate before the pandemic and there was no sign of inflation increasing,” she explained.
“I don’t think it’s a significant risk,” Yellen stated. “And if it materializes, we’ll certainly monitor for it but we have tools to address it.”
As the months progressed, Yellen’s opinions on inflation changed. In June, she appeared before the Subcommittee on Financial Services and General Government Committee on Appropriation and predicted that elevated prices would subside by the end of the year.
During a recent appearance on CBS News’ “Face the Nation,” the Treasury Secretary anticipated that prices would fall by the 2022 mid-term elections.
“It’s important to realize that the cause of this inflation is the pandemic,” purported Yellen. “The pandemic has been calling the shots for the economy and for inflation. And if we want to get inflation down, I think continuing to make progress against the pandemic is the most important thing we can do.”
Federal Reserve Misses Mark on Inflation
Like the Biden White House, the Federal Reserve had brushed off inflation concerns, too. This past spring, during a news conference following a Federal Open Market Committee (FOMC) policy meeting, Fed chair Jerome Powell rejected concerns that injecting trillions of dollars into the economy would trigger a significant bout of inflation.
In March, Powell told the House Financial Services Committee that he did expect a slight increase in inflation but assured lawmakers that it would not get out of hand.
“Our best view is that the effect on inflation will be neither particularly large nor persistent,” he said.
In a March 24 five-page letter to Florida Republican Senator Rick Scott, Powell warned that the U.S. economy would witness “a little higher” inflation amid the post-coronavirus economy and supply chain disruptions.
“We do not seek inflation that substantially exceeds 2 percent, nor do we seek inflation above 2 percent for a prolonged period,” he wrote.
As the consumer price index (CPI), the producer price index (PPI), and the personal consumption expenditure (PCE) price index continue to advance, there is a growing expectation that the U.S. central bank will raise interest rates earlier than initially forecast. Many surveys suggest that the Fed could pull the trigger on a rate hike in June 2022.
Earlier this month, Powell confirmed to the media that the institution could remain “patient” on rate normalization efforts, but it possesses the tools to act if necessary.
White House Pivots on Inflation
The Biden administration has attempted to downplay sizzling inflation, noting that rising prices could be a sign that the economy continues to recover.
“The faster than expected increase in some of those prices is actually a good sign in the sense that it’s a sign that the economy is recovering faster than a lot of people expected,” National Economic Council Deputy Director Bharat Ramamurti told Yahoo Finance in May.
In September, the White House explained that rising food prices are normal if you do not count products contributing to higher inflation. During a briefing, National Economic Council Director Brian Deese said to the press that increasing grocery prices are stable if beef, pork, and poultry are not factored into calculations.
According to the Bureau of Labor Statistics (BLS), nearly all food items have become more expensive. In the 12 months ending in October, the overall food index has surged 5.3 percent, with eggs climbing 11.6 percent, milk growing 4.3 percent, and cereals and bakery products swelling 3.5 percent.
Biden and his team are now convincing the public that the administration’s policies will help combat the inflation threats. During a signing ceremony of his $1 trillion infrastructure bill, the White House claimed that the new law will “act against inflationary pressures.”
“We still face challenges that we have to tackle,” Biden said in Baltimore, Maryland last week. “We have to tackle them head-on.”