Inflation Will Be Soon and Short, According to Treasury Secretary

March 15, 2021
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Janet Yellen, Secretary of the Treasury, and an ex-leader of the Federal Reserve, has warned that prices will increase in the short-term but won’t be sustained. The highly experienced and respected economist said recently that stimulus will boost the economy leading to short-term price increases, but a high-inflation economy is unlikely in the long-term.

Here’s what investors need to know about the latest news from Washington D.C.

Prices Will Increase to Pre-Pandemic Levels

Prices of general goods, services, and utilities are likely to increase to their pre-pandemic levels in the second half of this year. When demand fell during the pandemic, prices also declined. Now that people are getting back to work, receiving government assistance, and spending their direct stimulus payments, those prices are likely to increase.

Yellen doesn’t believe that it’s an area of major concern. Speaking recently to ABC News, the Treasury Secretary said of the increases; “That’s a temporary movement in prices. To get sustained high inflation like we had in the 1970s, I absolutely don’t expect that.”

She also pointed to the Federal Reserve, saying that it has learned how to manage inflation. Any unusual inflation or changes in the economic landscape will be carefully mitigated. Yellen said that the Treasury Department and other areas of the federal government now have “tools to address it.”

Federal Reserve Chair Jerome Powell has shared similar sentiments recently. The Fed isn’t concerned about inflation because wage growth is still sluggish, which should help to contain prices, even as bond yields increase. The Fed is still holding a target interest rate close to zero percent.

Should Investors Worry About Inflation?

Most economists believe that serious inflation is still years off when considering the current model. Any short-term inflation can be quickly addressed if it isn’t already absorbed by the growing economy and restored household incomes.

The job market is still down by around 10 million jobs compared to before the pandemic, but these are slowly returning as states open back up for business.

The market rallied last week, recovering from a period of swings. Biden’s $1.9 trillion stimulus package is driving confidence in the market. Inflation can be a serious issue in countries that fail to manage it, but America’s economy looks safe in the meanwhile.

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