Treasury Secretary Yellen says ‘big negative shocks’ will ‘inevitably challenge the economy’

Treasury Secretary Janet Yellen warned during a speech on Thursday that “significant negative shocks” to the economy are inevitable as the United States continues to grapple with the ongoing COVID-19 pandemic and the global disruption caused by Russia’s invasion of Ukraine.

The Biden administration official argued for greater safeguards against financial downturns, warning they “will likely continue to challenge the economy.”

She explained that the Great Recession after the 2008 financial crisis taught policymakers like her to correct the negative course “as quickly as possible”.

This comes after inflation hit a 41-year high of 8.5% in March, according to the Labor Department.

The economy’s rebound from the worst of the pandemic has driven up consumer prices for everything from gas to rent to groceries for much of President Joe Biden’s tenure.

The March inflation report, the most recent available, showcased the full extent of the Russian invasion’s impact on US consumers.

Russian autocratic leader Vladimir Putin ordered his unprovoked attack on February 24, disrupting precarious global food and energy supply chains.

However, any mention of inflation was notably absent from Yellen’s Thursday remarks at the Brookings Institute, according to Bloomberg.

Instead, she presented a vehement defense of the president’s COVID-19 spending package, which — along with two similar bills signed by Donald Trump — has been accused by some economists of overstimulating the economy and stoking inflation. uncontrollable today. .

“These responses played a major role in triggering a robust recovery,” Yellen explained.

Vladimir Putin’s invasion of Ukraine has been blamed for throwing global energy and food supply chains into chaos

During his speech on Thursday, Yellen did not explicitly mention the latest 41-year high inflation figures when defending Biden’s US bailout – which economists say has contributed to the rising costs of consumption.

She added that Biden’s U.S. bailout and Trump packages “played a major role in sparking a robust recovery” in 2021, as public health restrictions began to be lifted and vaccines became available. available.

However, inflation outpacing record gains in wages and job growth means Biden critics and Republican lawmakers have always been able to use soaring consumer prices as a political cudgel.

But on Thursday, Yellen claimed the measures were necessary at a time of pure “uncertainty”.

“Throughout 2020 and into 2021, the trajectory of the pandemic, including its severity and the role of future virus strains, could not be predicted,” she said.

Failure to adequately support the economy, Yellen said, could have resulted in “a downturn that could amount to the Great Depression.”

She called on countries to put in place “recession remedies” to prevent what she predicted would be virtually certain future economic spirals.

“A better understanding of disruptions in supply chains, increases in commodity prices, the bursting of asset bubbles, and labor and productivity shocks can help policymakers put in place implement reforms that strengthen our economic resilience,” said Yellen.

The Treasury chief also backed Biden’s electric vehicles and push for clean energy generation as another way to cushion future market downturns.

The Biden administration has come under fire from Republicans for refusing to lease new oil and gas drilling licenses to blunt soaring gas prices.

Russia’s disruption of supply lines and the president’s ban on energy imports from Moscow helped push fuel prices above $6 a gallon in some parts of the country last month. .

On Thursday, the average pump price is still above $5 in California and Nevada.

But Yellen said Biden’s push for green fuel as a means to achieve energy independence “will lessen our future vulnerability to oil price shocks.”

“At the same time, they will promote the transition to cleaner energy sources which, in due course, will reduce the risks associated with natural disasters and climate change,” she explained.

She made the remarks just hours after the US economy was revealed to have contracted in the first quarter of 2022.

The country’s gross domestic product (GDP), a broad measure of the health of the economy, fell 1.4% between January and March, according to the Bureau of Economic Analysis.

It’s the worst economic performance since U.S. markets were thrown into chaos by the pandemic in the second quarter of 2020.

The last quarter of 2021, on the other hand, saw a record growth rate of 6.9%.