Yellen predicts inflation will stay higher over the next few months

Treasury Secretary Janet Yellen warned Tuesday that inflationary pressures hitting the US economy could last for some time.

Less than a week after Federal Reserve Chairman Jerome Powell called inflation “frustrating,” Yellen told CNBC the various problems that have combined to push prices up will likely pass. she doesn’t know how long it will take.

“Supply bottlenecks have developed and caused inflation,” she said in a live interview with “Squawk Box”. “I believe they are transient, but that doesn’t mean they’re going to go away in the next few months.”

Fed officials often use the word “transitional” to describe the current period with an inflation rate of 3.6% year-on-year, a 30-year high, according to their preferred gauge. Other measures of inflation, such as the consumer price index, are rising considerably higher, and some economists believe the Fed is underestimating the sustainability of inflation.

The Fed is targeting inflation at 2%, but said in its latest Federal Open Market Committee consensus estimate that the level will likely be around 3.7% in 2021 before dropping in subsequent years. St. Louis Fed Chairman James Bullard said on Monday that he believed inflation could reach 2.8% in 2022, compared to the Fed’s broader outlook of 2.3%,

Yellen noted the unusual nature of the current recovery after the shortest but steepest recession in U.S. history that lasted from February to April 2020.

“I trust the Fed to make the right decisions,” she said. “We have been struck by an incredibly unusual shock, and on the one hand, we are almost six million jobs short from where we were during the pandemic, which means that many people still need help. On the other hand, many companies find it difficult to hire.

Powell and other members of the Fed, whom Yellen chaired from 2014 to 2018, have indicated that they will likely take the first steps before the end of the year to withdraw the extraordinary assistance the central bank has provided to the economy and markets. This will involve gradually reducing the amount of bonds the Fed buys each month; interest rate hikes would come once this process is completed.

Like his former colleagues, Yellen remains generally optimistic about the state of the economy.

“We have had extraordinary changes in the pattern of demand from services to goods,” she said. “I know the Fed is trying to understand the implications of this.”

The next look at the state of the U.S. job market will take place on Friday, with economists polled by Dow Jones expecting non-farm payrolls to rise by 500,000, while average hourly earnings are expected to rise by 0 , 4% for the month and 4.6% from a year ago. Economists are watching wage gains closely for signs of future inflation.