Treasury Secretary Janet Yellen told lawmakers peppering her today with questions about the surge in the cost of living that inflation is likely to stay high and that she ought not to have termed big price increases as “transitory” last year.

Yellen, in a Senate Finance Committee hearing, continued to defend President Joe Biden’s $1.9 trillion American Rescue Plan, which Republicans have blamed for helping drive inflation to a four-decade high.

“Senator, we’re seeing high inflation in almost all developed countries around the world, and they have very different fiscal policies,” Yellen said in response to Montana Republican Steve Daines. “It can’t be the case that the bulk of the inflation we’re experiencing reflects the impact of the ARP.”

She acknowledged once again that both she and Federal Reserve Chair Jerome Powell erred in 2021 by forecasting that high inflation wouldn’t persist.

“Both of us probably could have used a better term than ‘transitory,’” she said.

‘REMAIN HIGH’

“There’s no question that we have huge inflation pressures, that inflation is really our top economic problem at this point and that it’s critical we address it,” she added. “I do expect inflation to remain high although I very much hope that it will be coming down.”

The hearing comes three days before a report forecast to show consumer prices rose 8.2% in the year to May, remaining near the 40-year high of 8.5% reached in March.

Lawmakers from both sides of the aisle highlighted their own concerns with inflation, ahead of midterm congressional elections in November where Democrats will be challenged to retain their control.

“Inflation is number-one issue I hear from Granite Staters,” said Democrat Maggie Hassan of New Hampshire, who’s up for reelection in November.

DRUG COSTS

Republican John Barrasso of Wyoming questioned Yellen’s credibility given that last year she had termed inflation as “manageable.”

Yellen, along with Democratic senators, highlighted proposals to help address living costs through measures including lowering prescription drug costs. Republicans attacked Yellen for wanting yet more spending even after the ARP had fueled price gains.

Yellen said that last year’s plan was enacted at a time when the economy remained in serious peril from the pandemic.

“In designing a policy there are various risks that need to be taken into account,” Yellen said. “Of course inflation was one of them, but the overwhelming risk was that Americans would be scarred by a deep and long recession.”

The Treasury chief repeated her view that unexpected shocks, including Russia’s invasion of Ukraine, were not predictable and contributed significantly to the inflation Americans continue to experience.

“Putin’s war in Ukraine is having impacts on energy and food prices globally,” she said. “It’s virtually impossible for us to insulate ourselves from shocks” like that from the war, she said.

The hearing was on Biden’s 2023 budget proposal. Yellen told lawmakers that the plan would complement the Fed’s efforts to rein in inflation by enacting programs that would help contain costs for Americans on energy, health care and pharmaceuticals. Deficit reduction would also help, she said.