Yellen noted that Federal Reserve Chair Jerome H. Powell has pledged to control inflation while maintaining a robust job market. “That’s going to take skill and luck,” she said. “But I believe it’s possible.”
Still, the rising prices of essential consumer goods, gas and housing have squeezed Americans’ budgets. The burden has fallen disproportionately on working-class and lower-middle-class people, many of whom are already living paycheck to paycheck.
The downturn in the stock market, while not an indicator of the health of the economy, has also reflected these concerns. Last week, the major indexes slipped into bear market territory, indicating that they were down more than 20 percent from their highs. That is affecting investors’ psychology and retirement outlook.
The Fed has aggressively increased interest rates in recent months to slow the rate of inflation, which hit a new peak in May. On Wednesday, the Fed leaders hiked interest rates by three-quarters of a percentage point, the highest such increase since 1994. In May, Fed leaders hiked interest rates by half a percentage point.
Yellen pointed to the war in Ukraine and supply chain issues caused by coronavirus-related lockdowns in China as primary drivers of inflation.
Economists outside the administration have pointed to government spending via the $1.9 trillion American Rescue Plan signed by Biden in March 2021 as partly responsible for rising prices. Republican critics see the $1.9 trillion relief plan as a political liability for the president and the Democratic Party ahead of the 2022 midterm elections.
A timeline of inflation and economic policy
In an interview with the Associated Press on Thursday, Biden pushed back against critics who say that his administration is to blame for the high inflation rates, pointing out that it is an economic reality across the globe. He also said the United States is in a stronger position than other countries to combat inflation.
A recession is “not inevitable,” he said.
Energy Secretary Jennifer Granholm said on CNN’s “State of the Union” on Sunday that Biden was weighing whether to call for a federal gas tax holiday, which would give drivers relief at the pump, but she noted that revenue from the tax is used to improve roads. She noted this summer would be difficult on drivers.
“Inflation, obviously, is happening globally,” Granholm said. But “a recession is not inevitable,” she added. “The president really wants to have a steady and stable recovery.”
Biden will travel to Saudi Arabia next month as part of a broader trip to the Middle East, during which Granholm said he is expected to meet with Crown Prince Mohammed bin Salman.
“He has asked for all suppliers around the world to increase production. That includes OPEC, that includes our domestic oil and gas producers,” Granholm said. “There’s a series of meetings around energy overall.”
Brian Deese, director of the National Economic Council, said the administration is doing everything it can to combat inflation and can do so without pushing the country toward an economic slump.
“What I would say is that not only is a recession not inevitable, but I think that a lot of people are underestimating those strengths and the resilience of the American economy,” Deese said on CBS News’s “Face The Nation.”
“Not only is a recession not inevitable, but what we as policymakers can do is take steps to build on our unique strengths in the American economy,” Deese said on “Fox News Sunday.”
Many critics have said the Federal Reserve should have acted sooner to stave off inflation.
“I think the Fed has to be very, very careful here on that issue. They have made huge mistakes on being behind the curve,” former treasury secretary Larry Summers said on NBC News’s “Meet the Press” on Sunday. “Their models, to be honest, I don’t think are accurate for the current situation.”
But does he believe a recession is inevitable?
“I think the likelihood is that in order to do what’s necessary to stop inflation, the Fed is going to raise interest rates enough that the economy will slip into recession,” Summers said.
Rosalind Helderman contributed to this report.