Yellen says spending on covid may have contributed a little bit to inflation

Treasury Secretary Janet Yellen acknowledged that the Biden administration’s pandemic stimulus spending may have slightly contributed to inflation, though she emphasized that supply chain disruptions and shortages were the primary drivers of rising prices. Yellen made the remarks during an interview on CNBC on Wednesday.

“It may have contributed a little bit to the inflation, but by and large, inflation was a supply-side phenomenon,” Yellen said, marking a rare acknowledgment from a Biden administration official regarding the impact of their economic policies on inflation.

Yellen defended the necessity of the stimulus measures, stating they were critical to avoiding the long-term economic damage often seen after downturns, such as widespread business closures, prolonged unemployment, and workforce alienation.

The Treasury secretary pointed to global supply chain breakdowns and shortages—particularly of semiconductors and other key components—as the main culprits behind rising prices during the pandemic. These shortages, she noted, severely disrupted production for automakers and other industries.

Yellen also remarked on the current economic landscape, noting that while prices had not seen much relief in recent months, she believed inflation was on a “downward path.” She highlighted that the labor market had cooled but remained healthy and that recent economic data suggested interest rates could stay higher than previously anticipated.

However, Yellen cautioned that uncertainty loomed over future economic policy as President-elect Donald Trump prepared to take office on January 20.

Despite these concerns, Yellen expressed optimism about the state of the U.S. economy, citing strong consumer spending and robust investment activity, even amid higher interest rates.

She stressed the importance of maintaining fiscal sustainability, warning that efforts to hinder the modernization of the Internal Revenue Service could result in an $800 billion deficit increase.