Treasury Secretary Janet Yellen warned Thursday that prices could continue to rise for a few more months, although she expects the recent appalling inflation to subside over time.
In a CNBC interview, the cabinet clerk added that she was concerned about the problems inflation could create for lower-income families looking to buy property at a time when property values are rising.
“We will have inflation a few more months faster,” said Yellen Sara Eisen during a Closing Bell interview. “So I’m not saying this is a one month phenomenon. But I think in the medium term we will see inflation return to normal levels. But of course we have to keep a close eye on this. “
The consumer price index, which measures the cost of a wide range of items, rose 5.4% in June, the fastest it has in almost 13 years. Excluding food and energy, the readings rose 4.5%, the fastest acceleration in nearly 30 years. The prices that manufacturers of goods and services receive for their products rose 7.3%, a record for data dating back to 2010.
Real estate prices in the country’s largest cities also rose by almost 15% in the latest measurements by S&P CoreLogic Case-Shiller.
All of this has led to concerns that inflationary pressures could stall the aggressive recovery in the US economy, with escalation in the real estate sector raising fears of a bubble.
“So I don’t think we see the same dangers as we did in the run-up to the 2008 financial crisis,” said Yellen. “It’s a completely different phenomenon. But I worry about affordability and the pressures that higher house prices are putting on families who are first buying a home or have lower incomes.”
Some positive signs
Although consumer surveys suggest higher inflation is imminent, Yellen said she was encouraged by market-based measures that suggest prices will come down over the longer term.
Despite inflation fears, the 10-year government bond yield, which is seen as the benchmark for growth, has fallen below 1.3% after rising a full percentage point to around 1.75% from October 2020 to March 2021.
Other measures, such as a widely used market measure of the differentials in yields between 5-year and 10-year government bonds and inflation-indexed bonds of the same maturity, have moved down from the 13-year highs seen in May.
“Measures of inflation expectations still seem quite limited in my opinion in the medium term,” said Yellen. “These expectations are actually a driver of price-setting behavior. It is therefore important that we monitor them carefully. But I basically believe that this will level off.”
Regarding government bond yields specifically, she said they were “the market that expresses its belief that inflation is under control”.
Yellen spoke when Federal Reserve Chairman Jerome Powell was grilled by House and Senate lawmakers this week over whether historically simple Fed policies and aggressive congressional spending risked runaway inflation. The Fed, who once chaired Yellen, kept its balance sheet over $ 8 trillion during the pandemic, while Congress is targeting a budget deficit of $ 3 trillion for the second year in a row.
Powell acknowledged that the Fed is “not happy” with the current inflation rate but also expects it to ease as factors unique to the pandemic recede and conditions return to normal. For her part, Yellen said spending related to the White House-backed American bailout plan is helping the recovery.
“I think we are seeing that it has the desired effect and also prevents scars and damage to families and their finances,” she said.
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