Yellen Says Americans Seeing Inflation ‘Well Under Control’

(Bloomberg) -- Treasury Secretary Janet Yellen said that inflation is now “well under control” after a historic surge triggered by the pandemic, and that she believed many Americans would agree.

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“Inflation is now near-term at close to the lowest levels we’ve seen in that survey,” she said Thursday in an apparent reference to inflation expectations reported by the University of Michigan consumer sentiment survey. “So I think Americans do believe that inflation is under control.”

Yellen made the remarks at the Economic Club of Chicago in answering questions after a speech touting the Biden administration’s economic policy accomplishments.

Data released earlier Thursday showed a closely watched measure of underlying inflation ran at 2% for a second straight quarter, in line with the Federal Reserve’s target. That’s despite surprisingly strong growth in the fourth quarter of 3.3%.

Americans are also benefiting from wage growth that now exceeds inflation, the Treasury chief highlighted.

‘Getting Ahead’

“People are getting ahead,” she said. “They’re seeing their fortunes improve, and I believe that if inflation stays low they’ll begin to regain their confidence in the economy.”

Separately, Yellen suggested that productivity, a key component to growth, could be on the rise, helping to explain how robust economic activity hasn’t hampered the slowdown in inflation.

“We have had some recent strong productivity numbers,” she told reporters following the Chicago event. “If productivity is increasing, and output’s increasing, this is all good.”

Productivity measures output for a given amount of labor. If it increases — such as because companies use more technology or worker skills are rising — the economy can grow without adding to inflation pressures.

Soft Landing

And the Treasury chief saw no sign of resurgent inflation in today’s data.

“It’s a good thing, reflective of strong, healthy spending and productivity improvements, and most likely not creating an inflationary challenge,” she said of the GDP report. “I don’t really see anything that threatens a soft landing scenario in this report.”

She cautioned, however, that it’s too early to declare that productivity will be on the upswing for the longer haul.

“It may be we’re having a period of more rapid productivity growth,” she said. “There’s a lot being written about AI and its potential to improve productivity growth, but it would be completely speculative to go there.”

Yellen also said that while the cost of the country’s debt load remained manageable, it would become a threat to fiscal sustainability should interest rates remain elevated for a more extended period of time.

“If interest rates stay much higher for longer, and because of an ageing population, we do need to take steps to make sure that our deficits come down and remain at manageable levels,” she said.

(Updates with comments on productivity, starting in seventh paragraph.)

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