Federal Reserve Chairman Jerome Powell and Secretary of the Treasury Janet YellenJanet Louise Yellen On the money – Powell pivots as inflation rises Schumer plans to vote for Build Back Better as early as week of December 13 Trump: McConnell must use debt limit to crush Biden agenda MORE On Wednesday, they underestimated how quickly the U.S. economy would rebound from the COVID-19 recession and strain supply chains.

In a hearing before the House Financial Services Committee on Wednesday, America’s two top economic policymakers acknowledged that high inflation has risen and persisted much longer than expected.

“We understood that the demand would be strong,” said Powell. “We did not understand [the] significant problems on the supply side.

Yellen and Powell both said significant fiscal and monetary stimulus played a role in the increased demand that fueled inflation, but called this a difficult side effect of an otherwise recovery. fast.

“Inflation is a matter of demand, and it is certainly true that the US bailout has put money in people’s pockets, helped them meet the expenses they had, and helped a strong demand in the US economy, ”Yellen said, referring to the $ 1.9 trillion. The March stimulus bill signed by President BidenJoe BidenCDC Works To Tighten Testing Requirements For International Travelers On The Money – Powell Pivots As Inflation Rises Overnight Energy & Environment – Presented by ExxonMobil – Manchin Seeks ‘Adjustments’ to Spending Plan MORE in March.

“But if you look at the amount of inflation we have and its causes, [the stimulus bill] is, at most, a small contributor, ”she continued. “It allowed their spending, but the fact that their spending – due to the pandemic – was so focused on goods as it was on services contributed massively to supply chain problems. “

Both the Biden administration and the Fed have been criticized for months by Republican lawmakers and even some moderate Democrats who fear they have boosted the economy too much into an inflationary spiral. Their criticism has mainly focused on Biden’s stimulus bill in March and the Fed’s refusal to raise interest rates as the labor market continues to recover from the loss of 21 million jobs. .

Trillions of dollars in fiscal and monetary support issued since 2020 and the wide availability of COVID-19 vaccines have helped the U.S. economy recover much faster than any other country devastated by the coronavirus pandemic.

Consumer spending in the United States has exceeded pre-pandemic levels, even in the face of rising prices. Job growth and wages also accelerated in the second half of the year, with the United States creating an average or more than 400,000 jobs in each of the past three months.

Despite this, the prices of a wide range of consumer goods have risen sharply this year as manufacturers, shipping lines, suppliers and retailers struggle to meet demand in a minefield of stress-related constraints. the pandemic. The emergence of the delta variant has also shifted more spending towards the overburdened goods sector and away from service sector industries, such as restaurants and entertainment, which are still struggling to return to pre-pandemic activity. .

“It’s the administration’s agenda that drives up the price of things. It makes things worse for the American people, not better, ”said Rep. Patrick mchenryPatrick Timothy McHenry Consumer Bureau chief slams FTC, vows to focus on tech giants, big business House Democrats scramble to save housing as Biden plans to downsize Congress must step up cryptography, or Biden could overwrite it MORE (NC), Republican ranking in the financial services panel.

While the Fed, not the Treasury, is primarily responsible for keeping prices stable, Republicans have blamed most of the blame for the high inflation on the Biden administration. Republican lawmakers have sought to tie Biden to rising prices ahead of the midterm election as the party seeks to win back the House and Senate.

Yellen defended the administration’s stimulus efforts, explaining that it was “extremely difficult” for policymakers to know how much stimulus the United States would need to weather the blow of the pandemic. She added that the top priority of the Biden administration was to avoid a slow and grueling recovery akin to flashing back from the depths of the 2007-08 recession.

“We were very concerned that the biggest risk facing the US economy was a shortage of jobs and a prolonged downturn. It would frighten a lot of people, especially the most vulnerable, ”Yellen said.

Although Yellen and Powell predicted months ago that price growth would slow by the end of the year, both admitted on Wednesday that they underestimated the supply grunts.

Powell added that while the United States was experiencing the strongest rebound of any country hit hard by the pandemic, it was not alone in suffering from higher inflation.

“COVID continues to impose constraints on the supply side,” said Powell. “A lot of the same characteristics that we see here, you see them elsewhere, but different countries are feeling it to different degrees. “

The emergence of the omicron variant of COVID-19 has also threatened to exacerbate delays in supply chains, especially as countries with lower vaccination rates brace for restrictions and potential blockages. Biden has ruled out such measures in the United States, but another wave of cases could shift more spending to the goods sector and prevent the return of some of the millions who left the workforce last year due to health problems.

Democrats insisted the Fed and administration could not afford to dampen efforts to support the recovery as a new variant threatened to upend progress. They also argued that reducing fiscal and monetary support would do little to eliminate port arrears, speed up manufacturing, or bring more workers back to understaffed industries.

“It is crucial that the Fed delay declaring a premature victory over this economic recovery until the communities that have been hit hardest – people of color, late renters and women, who have been hit hardest. did most of the care. – have a chance to experience recovery, ”said the representative. Maxine WatersMaxine Moore WatersThe Hill’s Morning Report – Brought to you by Facebook – Biden to brief Americans on Omicron; Congress maintains GOP plans to expel Democrats from seats if House reverses McCarthy pledges to restore Greene and Gosar to committees if GOP wins House MORE (D-Calif.), Chair of the Financial Services panel.

Powell said this week that the Fed would consider accelerating the reduction in its monthly bond purchases at its next monetary policy meeting, but he did not comment on when the bank might start raising rates. interest. Yellen also pitched Biden’s $ 1.75 trillion climate and social services plan as a long-term way to cut prices as the administration tackles the short-term challenge of unblocking lines. supply.

Yellen added that the plan would have little to no inflationary impact, as its cost is mostly covered by a series of tax increases and other revenue-raising measures.

But Republicans have insisted Biden is leading the United States into an inflation crisis, even though most economists still expect price increases to moderate eventually.

“You all won the election. It’s your prerogative to ignore Republican concerns. But you went ahead with the US bailout, which we warned would increase inflation, ”the representative said. Anthony GonzálezAnthony GonzalezTexas Democratic Rep. Eddie Bernice Johnson Announces Retirement At End Of Term The Hill’s Morning Report – Brought to you by ExxonMobil – Will Biden’s Big Bill Go Through the House This Week? Republican Rep. Upton not sure if he will run for more (R-Ohio) said.

“This is exactly what happened. You are ready to make the exact same mistake again.