Treasury Secretary Janet Yellen on Tuesday downplayed concerns that inflation could rise to levels reached during an economic downturn in the 1970s, claiming that the Federal Reserve would act before a surge of that magnitude could occur.

Yellen has repeatedly said that it expects inflation to return to acceptable levels of around 2% by 2022. She repeated this stance during an appearance on the marketplace radio show, arguing that economic conditions will improve as the economy recovers from the COVID-19 pandemic.

When asked about the possibility that her forecast was wrong, Yellen tried to reassure that the inflation situation was being “carefully monitored”. She said the Federal Reserve would “not allow” a return to double-digit inflation rates of the 1970s when Americans faced nationwide gas shortages and other economic troubles after the Vietnam War.


“Monetary policy would play a role if it turned out to be something endemic,” Yellen said. “In the 1970s, we saw supply shocks turn into endemic inflation, with wages rising, and prices rising as a result. We don’t see that now. I don’t think we’re going to play a role in keeping it under control. “

Inflation reached a 13-year high of 5.4% in September. The Biden government is facing increasing pressure to manage the high cost of everyday necessities such as gasoline and meat as businesses grapple with supply chain bottlenecks and labor shortages.

Former Obama administration economic adviser Larry Summers is a notable critic of Yellen’s stance, who claimed last month that he felt that she had a “less than 50/50 chance” that inflation was right by going back next year.

“Expect a larger labor supply and a more normal demand pattern,” Yellen told Marketplace. “When people feel more secure, the demand for these goods, the prices of which are rising, will fall and they will return to services in a more normal pattern. And at that point I would expect the price increases to level off.” and we will return to inflation closer to the 2% we believe to be normal. “

Republicans argue that the economic policies of the Biden administration are responsible for rising inflation. They warn that the crisis could worsen if Congress passes Biden’s extensive law on social spending.


Meanwhile, the president and his allies say inflation rates are temporary. President Biden has argued that his infrastructure and spending bills will help address the underlying causes.