Janet Yellen warns inflation decline might not be ‘smooth’

In a sit-down interview with FOX Business’ Edward Lawrence, Yellen pushed back against stagflation concerns and maintained that progress on inflation has not stalled.

“I wouldn’t expect this to be a smooth path month to month, but the trend is clearly favorable,” she said. “That said, President Biden’s top priority is addressing the issue of high costs that concerns so many Americans.”

INFLATION RAN HOTTER THAN EXPECTED IN FEBRUARY AS HIGH PRICES PERSIST

Prices for everything including groceries, new cars and health insurance surged in 2021 and 2022 as the result of rampant inflation, which was caused by COVID-19 pandemic-induced disruptions in the global supply chain, an extremely tight labor market and increased consumer demand fueled in part by stimulus cash.

While inflation has fallen considerably from a peak of 9.1% notched during June 2022, it remains above the Federal Reserve’s 2% goal. And when compared with January 2021, shortly before the inflation crisis began, prices are up a stunning 18.49%.

WHY ARE GROCERIES STILL SO EXPENSIVE?

High inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations.

Inflation over the decade

But progress on inflation has largely flatlined since June, with the consumer price index hovering at or above 3% for the past nine months, stoking concerns on Wall Street over the possibility of “stagflation.” Stagflation is the combination of economic stagnation and high inflation, characterized by soaring consumer prices as well as high unemployment.

Stagflation fears surged in 2022 as the Fed began aggressively hiking interest rates to quell raging inflation, but those mostly dissipated last year amid signs that price pressures were subsiding without a substantial hit to economic growth.

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Although there have been some signs recently that inflation is proving to be stickier than expected, Yellen pushed back against those worries.

“I don’t think we’re going to see stagflation,” she said. “Most forecasters believe we’re on a path where inflation will come down over time.”

Yellen also said she expects the cost of rental housing, which was one of the largest drivers of inflation in January and February, to fall in the coming months as tenants sign leases with lower rents.

“I have every expectation that the single biggest contributor to inflation is going to be moving down over this year,” she said.