Janet Yellen at the Treasury Department in Washington, D.C., on Jan. 10. Ting Shen/Bloomberg

U.S. Treasury Secretary Janet Yellen said persistently weak inflation is likely to return as a long-term challenge for the economy and policymakers once pandemic-era distortions behind the recent surge subside and prices cool.

“We’re just coming through an unusual and difficult period, but I do not think we’re in any way back to the ’80s and ’70s,” she said in an interview, referring to an era of rising prices and wages.

While central banks still have a long way to go to smother the worst bout of inflation in decades, with prices on the downtrend the debate is now shifting to what happens after this fight is over.

The risks of getting it wrong are high, economically and politically. Yellen, along with Federal Reserve Chair Jerome Powell and many in the U.S. economic establishment, incorrectly predicted in 2021 that the burst of inflation would be “transitory.”

She has since admitted getting that call wrong and supported the Fed’s efforts to rein in prices with aggressive interest rate hikes, which risk pushing the United States into a recession.

Unlike in the 1970s and early 1980s, Yellen said the current episode of high inflation hasn’t triggered a wage-price spiral, a dynamic in which workers demand raises in anticipation of higher prices, prompting firms to increase prices. Economists look for signs of such a spiral in inflation expectations.


“Expectations have been well anchored, and I believe they’re still pretty well anchored,” she said in the interview on Friday in Johannesburg, on the final leg of a three-nation visit to Africa. “So we’re not seeing a wage-price spiral. That’s not happening.”

The annual increase in the consumer price index topped out at 9.1% in June but has slowed to 6.5% as of last month in response to the Fed’s rate hikes, as well as easing supply chain stresses and sliding oil prices.

Former Treasury Secretary Lawrence Summers and Kenneth Rogoff, an ex-chief economist for the International Monetary Fund, are among those who have warned the world’s economy is entering a period of geopolitical tensions and debt crises that risk making episodes of high inflation and high-interest rates more common.

Another former IMF chief economist, Olivier Blanchard, is more aligned with Yellen, arguing today’s inflation will not last and that central banks, including the Fed, will face a return to an environment in which interest rates are uncomfortably close to zero. He’s proposed that central banks lift their inflation targets from 2% to 3% to counter that.

Yellen spent a quarter century at the Fed, including four years as chair from 2014 to 2018. During almost that entire tenure, inflation was historically low thanks to demographics, technology, and globalization.

The Fed’s preferred gauge of inflation, the personal consumption expenditures index, rose by an annual average of 1.9% – below the Fed’s current target – from 1992 to 2019. Many policymakers have worried that was too low, forcing interest rates close to zero and robbing the central bank of the ability to fight recessions with deep rate cuts.

That streak was shattered by covid-19, marked by supply chain disruptions and government aid in the United States that jacked up demand, and then Russia’s invasion of Ukraine early last year triggered a spike in energy and food prices. Such jumps since the mid-1980s have tended not to last, she said.

“The pandemic created such unusual disruptions in the economy,” she said. “There were just a lot of supply chain problems. We hit the wall in a bunch of different sectors and prices skyrocketed.”

Yellen didn’t say how long she thought it would take for inflation to return to target, nor did she comment on how the Fed should react if it did.

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