Yellen Affirms Americans’ Improved Condition Despite Increasing Price Inflation
Treasury Secretary Janet Yellen recently defended President Joe Biden’s economic record and refuted the Republican argument that his policies are raising taxes. Speaking before the House Ways and Means Committee, Yellen outlined Biden’s 2025 budget and addressed concerns about rising inflation.
Despite the increase in price inflation over the past few years, Yellen claimed that the American people are better off today. She argued that while inflation has been a concern, it has actually decreased significantly over the past year. Yellen stated, “So, people generally are better off in spite of the price increases. But we know we have more work to do, and President Biden is very focused on areas where he can lower costs.”
This is not the first time Yellen has made such claims. In a February interview with “CBS Evening News,” she asserted that “American workers are getting ahead.” She acknowledged that some prices have risen since the pandemic, but emphasized that wages have also increased, making people better off overall.
However, the data tells a slightly different story. Cumulative inflation since 2021 has totaled approximately 19 percent, indicating that prices have indeed risen significantly. Yellen referred to the Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, to argue that conditions have stabilized. While it did rise to a higher-than-expected 2.7 percent in March, it is down from its peak of 7.1 percent in June 2022. The Core PCE, which excludes the volatile energy and food sectors, remained unchanged at 2.8 percent.
Yellen acknowledged that households have not seen prices return to their pre-pandemic levels but highlighted that many people are experiencing higher wages. According to the Bureau of Labor Statistics, the Employment Cost Index rose 1.2 percent in the first quarter, surpassing market estimates. However, when adjusted for inflation, compensation remained largely unchanged. Real average hourly wages have actually decreased by 2.7 percent since January 2021.
Despite these challenges, Yellen argued that the public is doing well. She mentioned the Inflation Reduction Act, which targets components contributing to higher living costs such as drug prices, healthcare premiums, and household energy costs. President Biden himself admitted that the legislation had more to do with generating economic growth than reducing inflation.
One of the main points of contention between Republicans and the Biden administration is tax policy. Republicans accuse Biden of raising taxes on many Americans, including those earning less than $400,000. Biden plans to allow the tax cut enacted by former President Donald Trump in 2017 to expire in 2025. Economists predict that this would result in most Americans facing higher tax bills.
Yellen took exception to these assertions, reiterating that Biden “will not support higher taxes on families making under $400,000.” The debate over tax policy continues to be a point of contention between the two parties.
Another concern that has emerged this year is the reacceleration of inflation. The Consumer Price Index rose to 3.5 percent in March, and the Fed’s preferred inflation gauge, the PCE, has also been moving in the wrong direction. Various factors contribute to this upward trajectory, including higher energy prices, soaring housing costs, loose financial conditions, and increased money supply.
Crude oil prices have risen by 15 percent this year, leading to higher gas prices for consumers. Housing affordability remains a significant challenge for many Americans, with house prices rising 7 percent year over year. Mortgage rates have also increased, with the 30-year fixed-rate mortgage surpassing 7 percent.
These trends have led to a deterioration in consumer sentiment. The University of Michigan’s Consumer Sentiment Index was revised lower in April as consumers express uncertainty about the future trajectory of the economy.
While Yellen maintains that Americans are better off today, the reality is more nuanced. Rising inflation, stagnant wages, and increasing costs in crucial areas like housing pose challenges for many households. The debates over tax policy and inflation are likely to continue as policymakers and economists grapple with finding solutions to improve the economic well-being of all Americans.
