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Biden’s Fed Chairman: ‘We Now Understand Better How Little We Understand About Inflation’

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Joe Biden

On Wednesday, Federal Reserve Chairman Jerome Powell defended the Biden administration’s failure to predict the current inflation crisis, saying that the record high inflation levels helped the Biden administration “understand how little we understand about inflation.”

During the European Central Bank forum, host Francine Laqua asked panelists, “Hindsight is a beautiful thing, I know…but going forward…how do we need to look at inflation differently? So, for example, in the U.S. — the stimulus. Did we circulate the impact this would have on inflation?”

“I think we now understand better how little we understand about inflation,” Powell responded.

“That’s not very reassuring,” the host noted.

“No, honestly, this was unpredicted. I was looking at the time of our June meeting one year ago, of the 35 people who filed with a survey of professional forecasters, 34 of them had inflation below four percent for the last year. And of course, it was way above four percent,” Powell said.

It should be noted that many economists outside of the Biden administration did predict the inflation crisis. Larry Summers, who served as Treasury Secretary under the Obama administration, warned in May 2021 that President Biden’s $1.9 trillion American Rescue Plan would greatly increase inflation rates. Summers said that the bill had “very substantial risks on the inflation side.”

Additionally, in June 2021 Larry Summers told PBS’s “Firing Line with Margaret Hoover” that the Biden administration’s policies had driven inflation.

“If you looked at how the economy was coming into this year, we had total wages and salaries coming to people were 20 or 30 billion dollars a month lower because many of them had to be home because of COVID and the economy was slowed,” Summers said. “But we put in a stimulus that was putting into the economy more than 200 billion dollars a month. And so when you take a hole and you overfill it, you’re likely to have problems.”

“And I think we know that inflation’s like a lot of other things, it’s a lot easier to prevent than it is to cure,” Summers continued. “And I think the credibility of policymakers, including those at the Fed, is much easier to preserve than it is to restore.”

He later added, “The main risk is that our economy’s going to overheat. And then once it overheats, it’s going to be hard to put out the fire without doing a lot of damage and causing a lot of problems. And so I’d like to see us shift towards a policy concern.”

Powell’s admission that the Biden administration does not understand inflation comes just weeks after Treasury Secretary Janet Yellen similarly said that she didn’t “fully understand” how inflation occurred and admitted that she was “wrong” about inflation when she said in 2021 that it was just a “small risk.”

“Well, look, I think I was wrong then about the path that inflation would take,” Yellen said. “As I mentioned, there have been unanticipated and large shocks to the economy that have boosted energy and food prices and supply bottlenecks that have affected our economy badly that I didn’t — at the time didn’t fully understand. But we recognize that now.”

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