(Bloomberg) – Janet Yellen, worried by the specter of inflation, initially urged Biden administration officials to cut the $1.9 trillion U.S. bailout package by a third, according to an advance copy of a biography of the Secretary of the Treasury.
“Privately, Yellen agreed with Summers that too much government money was flowing too quickly into the economy,” writes Owen Ullmann, the book’s author and veteran Washington journalist, referring to former Treasury Secretary Lawrence Summers, who harshly criticized the scale of the aid. to plan. The book is due out on September 27.
A Treasury spokesman disputed the allegations.
“The Secretary did not ask for a smaller package and, as she said, believes that without the U.S. bailout, millions would have been economically scarred and the country’s historically rapid recovery would have been far more slow,” Treasury spokeswoman Lily Adams said. said in response to the book’s claims.
Ullmann’s account sheds new light on a political debate that preceded the eruption of inflation, which now poses a major political threat to President Joe Biden and his Democratic Party’s control of Congress.
Overheating fears have since proven justified, as price increases this year hit a 40-year high and severely hurt Biden’s standing among voters. Democrats blamed the spike in costs on supply chain bottlenecks caused by the pandemic and soaring energy prices after Russia invaded Ukraine. They also pointed to measures taken by companies in certain sectors to increase their profits. But most economists cite bloated demand — fueled in part by Biden’s spending plan — as having been a major factor.
Yellen’s concern about inflation “is why she unsuccessfully sought to cut the $1.9 trillion relief package by a third in early 2021 before Congress passed the huge program,” wrote Ullmann, who had “unfiltered access” to Yellen as he researched the book, according to publisher PublicAffairs.
Ullmann wrote: “She was concerned that so much money in the pockets of consumers and businesses was driving up prices at a time when the pandemic had caused severe shortages of goods that were in unprecedented demand. »
The ARP was passed in March 2021 after Congress had already approved two giant pandemic relief packages totaling nearly $3 trillion, enacted under the previous Trump administration.
It is not clear from the book how much Yellen lobbied to reduce the size of Third Wave Aid or with whom she engaged in administration. And Ullmann goes on to point out that Yellen threw his full weight behind the bill as he advanced into his largest size.
The Treasury chief endorsed the package in front of US lawmakers, telling them that historically low interest costs on the federal debt had given the government leeway for fiscal expansion. She continued to defend the ARP even though high inflation proved persistent. In an April 28 speech, she said it helped push unemployment to 3.6%, nearly a 50-year low, and prevented the pandemic from causing a much greater degree of suffering for Americans.
Still, Yellen “would have preferred something closer to $1.3 trillion, according to his colleagues,” Ullmann wrote. “But given the choice between Biden’s full $1.9 trillion package and the less than $1 trillion that some members of Congress preferred, Yellen thought going big was the best path.”
Yellen also felt that even if the bill injected too much money into the economy, the resulting spike in inflation would be “transient”, a term she used until 2021.
In a June 1 TV interview, Yellen admitted, “I was wrong about the path inflation would take.” Although she added that much of the failure was due to unforeseen shocks, including the emergence of new variants of Covid-19 and the war in Ukraine.
According to Ullmann, Yellen was angered by Summers’ attacks on the stimulus package, although she shared some of his concerns.
“Yellen was irritated that he would cause his own party so much grief by arming Republicans and some Democrats — like Senator Joe Manchin of West Virginia, a conservative by Democratic standards — with justification to oppose the proposals for further spending on Biden’s agenda,” Ullmann wrote.
Manchin cited rising inflation, as well as long-term debt issues, when he later opposed Biden’s 10-year, $3.5 trillion economic development proposal known as the name of Build Back Better.
Ullmann has covered economics and politics in Washington since 1983, with stints at Knight Ridder, BusinessWeek and USA Today.
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