WASHINGTON – Treasury Secretary Janet Yellen says that the economic recovery is going to be “bumpy” with high inflation readings likely to last through the end of this year.
But Yellen insisted that the inflation pressures will be temporary and if they do threaten to become embedded in the economy, the government has the tools to address that threat.
In testimony before a House Appropriations subcommittee Thursday, Yellen was asked about a big jump in prices reported last week, which showed consumer price index rising by 4.2% over the past year, the largest 12-month gain since 2008.
Yellen said that the April price increase was the result of a number of special factors related to the economy opening back up. She said as she has in the past that the price jump would be temporary but she indicated it would be more than a one-time gain.
“I expect it to last, however, for several more months and to see high annual rates of inflation through the end of this year,” Yellen told lawmakers.
“As the economy gets back on line, it is going to be a bumpy process,” Yellen said.
The high April inflation reading, Yellen said, reflected in part big gains in the pries of airline tickets, hotel rooms and recreation, all areas where prices had fallen dramatically after the pandemic hit the U.S. in March 2020.
In addition, Yellen said prices were being driven higher by supply chain shortages in such critical areas as computer chips and auto production, where there were temporary factory shutdowns during the pandemic.
“We have an economy that was struck by a very severe and unusual shock. It caused very substantial shifts in spending patterns,” she said.
Yellen said that she started studying economics and began her professional career during the 1970s, the last period of high inflation in this country.
“I remember what that terrible period was like. No one wants to see that happen again,” she said. “We obviously have to watch the current situation very closely.”
Yellen was testifying on the Treasury Department’s budget request for next year. The Biden administration will release its full 2022 budget request Friday.
The administration’s budget calls for a significant boost in funding for the Internal Revenue Service, an agency under the Treasury Department. Yellen said the increased funding was needed to boost IRS efforts to narrow the tax gap, the amount of payments that are being evaded which she said could total $7 trillion over the next decade.
“Many of the country’s wealthiest taxpayers do not pay their full tax bill and the IRS is not nearly staffed up enough to ensure compliance,” Yellen said.
She said that currently the IRS has fewer auditors than at any time since World War II.