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Treasury Sec. Yellen says she was ‘wrong’ about inflation

Yahoo Finance Live anchors discuss U.S. Treasury Secretary Janet Yellen’s comments on inflation as well as President Biden’s meeting with Fed Chair Powell.

Video Transcript

BRIAN SOZZI: As I just noted, Treasury Secretary Janet Yellen says she missed the mark in her comments about inflation last year. The former Fed chief told CNN she was, quote, "wrong about the path inflation would take." In early 2021, Yellen said inflation posed a small risk to the economy and didn't think it would be a problem. Joining us with more on this pivot by Yellen is Yahoo Finance's Brian Cheung. Brian, I guess Janet Yellen, former Fed chief, taking one for the team here.

BRIAN CHEUNG: Yeah, and now Treasury Secretary and pretty noticeable remark that she made to CNN yesterday. And she was saying, basically, I was flat out wrong about the path that inflation would take. And obviously, Yellen was one of these officials that, during the end of last year, as inflationary numbers were rising in every measure, said, well, look, this is probably because of supply chain constraints. And that's a big reason why the numbers that we're seeing as of the end of last year were so elevated.

But optimism not just amongst herself in the Treasury, but also at the Federal Reserve, to be fair, as well, that maybe those numbers would start to come down as the supply chain issues ease. They may have underestimated the impact that the demand had because of just the strong stimulus from easy money from the Fed and also from the stimulus from the fiscal policymakers like Yellen herself. A lot of that contributing to the high inflation that we see now, so it seems like, at least now, the acknowledgment from the administration inflation was too high, maybe some of that was because of the stimulus that was put in place during the pandemic. But either way you cut it or slice it, it's just not comfortable enough, and something's got to be done about it.

BRAD SMITH: Now, Treasury Secretary Yellen was actually present as well in the meeting between Fed Chair Jay Powell and President Biden yesterday. Do we know what kind of came from those talks?

BRIAN CHEUNG: Yeah, yesterday, around 1:00 PM, there was a meeting. You can see photos from that meeting yesterday, where the three large policymakers met in the same room. This is a pretty symbolic gesture here. There was not much substance that came out of that meeting in terms of what was discussed because after those photos were taken, the doors in the Oval Office closed, so we don't know exactly what was mentioned. But we do know that the readout afterwards following that meeting disclosed that the president had very strongly discussed the importance of maintaining the Federal Reserve's independence through all of this.

These are the two main forces that kind of stabilize the US economy when you think about monetary policy, which is interest rates from Jay Powell, but also fiscal policy from Janet Yellen and also from the White House. So to have all these policymakers in the same room, to have that photo together is something that the administration can take to the electorate and say, look, this is all of us all on the same page.

We all acknowledge how serious inflation is, even if the details of that meeting didn't actually yield any sort of policy. We know on one front, the Biden administration wants to focus on perhaps using tax policy, whether or not that's a good idea, to try to address inflation, but then on the monetary policy side of things, obviously, raising interest rates, which the Fed has already begun to do.

BRIAN SOZZI: Don't even get me going, Brian. We're not-- don't even get me going with the tax debate.

BRIAN CHEUNG: It's too early for that, Brian.

BRIAN SOZZI: Don't get me going.

BRIAN CHEUNG: It's too early for that.

BRIAN SOZZI: Well, let me ask this. Doesn't this admission by Yellen just feed this bearish narrative in the markets? Because the way I think about it, now the administration really truly has no credibility on trying to fight inflation here. I mean, I know Biden-- President Biden came out with the op-ed in the "Journal"-- really no plan in there either.

BRIAN CHEUNG: Well, let's kind of just zoom out here, right? We know that inflation is going to be essentially the largest issue as Americans go to the polls for the midterms, right? The challenge here is that the nuances of inflation are likely something that the general electorate is not too new-- too well versed in, right? You're not going to pull someone off the street and go, oh, what is the reason for why eggs are up 10%, and then have someone explain to you, well, it was the demand side of the equation that the Federal Reserve missed. It's Jay Powell's fault. Because not many people know--

BRIAN SOZZI: Both of them screwed up.

BRIAN CHEUNG: Right, and that's totally fair, but not many people that you pull off of the street would kind of know the nuances of what the Federal Reserve does. So either way, though, what we do know is that the president in office right now is President Joe Biden, right? So that's who the electorate is going to blame if inflation does remain elevated, which it probably will, through the end of this year.

So who is going to be to blame there? You need to have some sort of photo op, some sort of marketing thing, that you can take to the electorate and say, look, all the policymakers, because there are other people involved with this as well, are also a part of the effort to try to take inflation down. Whether or not that's throwing someone under the bus is a whole separate question. But again, it's the administration trying to, at least, advance something to the public that they can show for by November.

BRAD SMITH: I know we got to move on, but very quickly here, does any of this change the policy pathway that the Fed has pretty much already set forth? And at this point, we've seen more of the markets digesting what that reality might look like if the Fed says, later on this year, that's when we'll kind of level set-- we'll press pause perhaps even-- does this change any of that?

BRIAN CHEUNG: No. What we know is that for the Fed, next two meetings, June and July, 50 basis points each. That's something that was essentially agreed to among the members of the FOMC, as we saw from the minutes from the Fed's last meeting in May. So nothing's going to change. And the Biden administration made it clear, based off of commentary after yesterday's meeting, that they're not going to try to force the Fed's hand or try to tip the Fed's hand into being more aggressive than that. So whether or not, down the line, this creates any sort of additional political pressure ahead of November could, indeed, be a fair conversation to have. But again, for right now, it seems like the Federal Reserve is getting an OK from the administration to continue doing what they've already been doing, which is raising interest rates.

BRIAN SOZZI: Brian, you sound like an inflation fighter. You're making a lot of sense to me this morning. What are you running for in the midterms?

BRIAN CHEUNG: [LAUGHS] No.

BRIAN SOZZI: You have my vote.

BRIAN CHEUNG: No, I'm staying right here on Yahoo Finance, right? So you don't have to worry about that. You can still rely on me for covering the December FOMC. Pencil that in.

BRAD SMITH: Cheaper eggs is the policy.

BRIAN CHEUNG: [LAUGHS] Exactly. We need to lower the price of eggs, yes.

BRAD SMITH: Brian Cheung, thanks for joining us this morning, breaking down all things inflation.