A former top economic official for President Barack Obama decried the Biden administration for overstimulating the economy following COVID-19 and the lockdown-induced recession.
Jason Furman — who chaired the Council of Economic Advisers and currently works as a professor at Harvard University — told the Associated Press that although “a sizeable chunk of the inflation we’re seeing is the inevitable result of coming out of the pandemic,” policymakers “systematically underestimated inflation.”
“They poured kerosene on the fire,” he argued, pointing to Biden’s $1.9 trillion American Rescue Plan.
“Inflation is a lot higher in the United States than it is in Europe,” Furman added. “Europe is going through the same supply shocks as the United States is, the same supply chain issues. But they didn’t do nearly as much stimulus.’’
Though Furman thinks that inflation “is going to come down from this year’s blistering pace,” it will remain “very, very high compared to the historical norms we have been used to.”
“They need to stop telling us that inflation is transitory, start becoming more worried about inflation, then act in a manner consistent with being worried,” Furman warned policymakers. “We’ve seen a little bit of that, but only a little bit.’’
In October, inflation for consumer prices hit a year-over-year rate of 6.2% — the highest level in three decades. As the American economy continues to witness rising prices, other economic advisers from the Obama era have also called for a slowdown on fiscal and monetary stimulus.
Last month, Larry Summers — who directed the National Economic Council from 2009 to 2011 — rebutted Treasury Secretary Janet Yellen’s assertion that the United States is not losing control of price levels.
“She expresses confidence that inflation is decelerating and will be back to target levels by the end of next year,” he said on Twitter. “I hope she is right but I think it’s much less than a 50/50 chance.”
“Given lags in the indices, housing inflation is almost certain to soar in coming months. With super-tight labor markets, rising strike activity and real wages having declined, increases in wage inflation are likely as well,” Summers continued. “I actually believe the gap between Treasury & Fed statements and the everyday experience of businesses and consumers in terms of inflation has widened in recent months.”
“Until the Fed & Treasury fully recognize the inflation reality, they are unlikely to deal with it successfully,” he added.
In an interview on Tuesday, Yellen doubled down on the argument that Biden’s multitrillion-dollar “Build Back Better” agenda ought to be passed despite inflationary risks.
“Well, inflation has been running at higher levels than we’ve been accustomed to seeing for a long time. And I know that really imposes a burden on households,” Yellen told Marketplace host Kai Ryssdal before saying that inflation is “a consequence of recovery from a very severe shock due to the pandemic and something that will work itself out over time.”
“Monetary policy would have a role to play if this turns out to be something that’s endemic. In the 1970s, we saw supply shocks turn themselves into endemic inflation, wages increased, prices increased as a consequence. We’re not seeing that now. I don’t believe we will. But if that were the case, the Federal Reserve would have a role to play to keep it under control,” Yellen added.