Under attack from Republican lawmakers at a congressional hearing this week, Janet Yellen offered a spirited defence of Joe Biden’s efforts to bring down high inflation, the biggest threat to his presidency.
An 8 per cent inflation rate in the US was unacceptable and Biden’s “number one objective” was to get it down, the Treasury secretary told the House Ways and Means committee on Wednesday.
“We are by far not the only economy to face inflationary pressures like this,” she added.
The labour market economist and former Fed chair has become the administration’s political shield on inflation. With data on Friday showing the US consumer price index rose by 8.6 per cent in May compared with 2021, Yellen has deflected criticism that the administration’s policies, particularly its $1.9tn stimulus bill enacted last year, have overheated the economy.
Through her many years in Washington, including as a top economic adviser to Bill Clinton, Yellen has tended to remain above the political fray. This has allowed her to maintain credibility and significant bipartisan support on Capitol Hill.
Supporters say that makes her the ideal voice for the administration at a time of crisis. It mirrors the standing of some of her predecessors in the job, including Henry Paulson under George W Bush, who were known for their expertise rather than their political or communications skills. It marks a departure from the approach taken by Steven Mnuchin, Donald Trump’s Treasury secretary, who was more overtly political.
But it has also got Yellen into trouble, muddying the White House’s message at a moment when voters widely disapprove of Biden’s handling of the economy and midterm elections are just a few months away.
Last week, Yellen conceded that she had been “wrong” about the path of inflation last year. At the time the risk of a big rise had seemed minor and the supply chain and Ukraine war shocks that followed could not be foreseen. It was a standard admission of a forecasting mistake for an economist, but it was immediately seized on by Republicans as evidence of culpability.
Yellen has also placed less emphasis on corporate greed or price-gouging as the cause of high prices than other administration officials, and suggested that lowering tariffs on Chinese imports imposed by Donald Trump might help to slow inflation, which is the subject of an intense internal debate.
“What she’s saying is what she believes. It may be inconvenient, but I think she’s speaking the truth,” says David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy in Washington.
“She makes the argument forcefully for the thing she agrees with and she refuses to read White House talking points that she doesn’t agree with” he added.
Ben Koltun of Beacon Policy Advisers adds that Yellen is “not a political animal”.
“She was nominated by Biden as someone who was immensely competent — I don’t know if I can say a transitional figure — but someone who people would trust. She was not someone who would showcase political chops or great messaging.”
So far Democrats from both the progressive and moderate wings of the party have backed Yellen. Many Republicans still say they respect her personally, but have become increasingly scathing about administration policies, and some have attacked her directly too.
“Not only has she stood by as President Biden pursued disastrous economic policies, she has even encouraged and attempted to justify the policies that have led our nation to the precipice of recession,” said Bill Hagerty, a Republican senator from Tennessee and a member of the banking committee in the upper chamber of Congress.
“I’ve been sorely disappointed that an economist like Janet Yellen would not have been able to dissuade such reckless policies whose effects are hurting Americans’ livelihoods,” he added.
In one tense exchange, Tom Rice, the Republican representative from South Carolina, asked Yellen if the White House was “intentionally” driving up energy prices.
“Of course it’s not intentional”, Yellen shot back, citing the president’s authorisation for the release of 1mn barrels a day from the country’s oil stockpile. Rice retorted that it was just a “drop in the bucket” and “you know it’s a sham”.
Sarah Binder, a professor of political science at George Washington University, said Yellen was caught up in a political and economic maelstrom that was hard to control.
“No matter what Yellen said or didn’t say . . . Republicans would be following this strategy of blaming the Biden administration and Democratic policies for inflation. That is their campaign,” she said.
“The broader economic context, which is creating the political problems, is generationally high inflation. That’s hard for an administration, who will be held accountable for it, even if the blame should also rest with the Fed,” she said.
In a statement to the Financial Times, Brian Deese, the director of the National Economic Council, said the White House was content with Yellen’s performance.
“Secretary Yellen has been a driving force behind the president’s economic strategy and a critical voice in the administration’s work to address the nation’s economic challenges.”
A White House official dismissed any notion of a rift between the White House and Treasury, saying they were “fully aligned”.
“Whether in the Situation Room or with our global partners and allies, her gravitas, ability to understand the politics and trade-offs of any issue, and experience maintaining financial stability during unstable times are highly valued by the president and our entire team,” the official said.
Speaking at a New York Times Dealbook conference on Thursday, Yellen said there was “nothing to suggest” the US might face a recession. But she warned that it was “unlikely that [petrol] prices are going to fall anytime soon”.
Yellen also insisted she didn’t regret the size or the scope of the stimulus bill — known as the American Rescue Plan. “I wouldn’t do it differently,” she said.
There have been persistent rumours almost since the start of the Biden administration that Yellen might soon leave the Treasury department, possibly after the midterm elections in November. But there has been no suggestion of that coming from her or the White House.
And Ian Katz, of Capital Alpha Partners, says the political influence of any Treasury secretary can often be overstated.
“If inflation is still bad in November, voters are going to punish the Democrats, and they won’t be thinking of Yellen when they do it.”