WASHINGTON – Treasury Secretary Janet L. Yellen said Thursday that she believed it was time to ditch the term “temporary” to describe inflation as temporary, and suggested that the Omicron coronavirus variant could prolong the price increase problem.
Speaking at an event hosted by Reuters, Ms Yellen said that the pandemic seemed to be subsiding in the summer and that the economy would soon return to normal. The proliferation of new variants changed that calculus, she said.
“Now a new option, the Omicron option, the pandemic could be with us for quite some time and hopefully not completely stifle economic activity, but affect our behavior, fueling inflation,” said Ms Yellen.
Ms Yellen’s remarks echo those of Fed Chairman Jerome Powell, who said earlier this week that inflation is more than a short-term issue.
“I’m willing to drop the word temporary,” said Ms. Yellen. “I can agree that this is not a very accurate description of what we are dealing with.”
The finance minister said it was too early to say what impact Omicron will have on the economy, noting that it could disrupt supply chains and trigger further inflation, but that if it slows economic growth, it could slow price increases. However, she warned that this could cause “serious problems.”
“At the moment, we are very unsure how serious the threat will be and are closely monitoring the scientific evidence that is accumulating,” said Ms Yellen. “Hopefully this is not something that will significantly slow down economic growth.”
She added, “This could exacerbate supply chain and inflation problems again.”
Ms Yellen, the former Fed chairman, said the central bank intends to use its tools to curb inflation, but said there was little it could do to ease clogged supply chains. She said that Mr. Powell’s proposal this week that the Fed would consider speeding up its plan to end financial support for the economy “makes sense.”
“What we don’t want is a wage-price spiral in which inflation is becoming a self-sustaining phenomenon that will become chronic in the US economy, something endemic,” said Ms Yellen.