“Inflation is elevated and will likely remain so in coming months before moderating,” Fed Chairman Jay Powell said during a Senate hearing.
Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen are now saying that inflation is rising higher than they originally anticipated, as President Biden and Democratic leaders push for passage of a $3.5 trillion social safety net spending bill.
“Inflation is elevated and will likely remain so in coming months before moderating,” Powell said during a Senate hearing on Tuesday. “As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors. These effects have been larger and longer-lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2 percent goal.:
The Federal Reserve has adjusted its inflation prediction from 3.4% in June to 4.2%.
Yellen previously predicted 2% inflation for 2021. She amended her prediction on Tuesday during questioning from Louisiana GOP Sen. John Kennedy.
“Probably closer to 4% and that already almost must be the case based on what’s happened this year,” Yellen said during the same Senate Banking Committee hearing.
Despite rising inflation, Yellen advocated for passage of Biden’s “Build Back Better Act,” which the Democrat-led Congress is planning to pass as a budget reconciliation bill with a party-line vote to avoid the filibuster. Senate Democratic leaders are aiming to pass the bill before the end of the year. The House has a test vote scheduled on Thursday for a separate $1 trillion bipartisan infrastructure bill that mainly consists of transportation-related spending.
Under questioning from South Carolina Republican Sen. Tim Scott, Yellen told the committee that the “Build Back Better” legislation would be fully paid for over time due to the tax hikes proposed by Biden and the Democrats.
The proposed bill includes new programs such as universal pre-K, tuition-free community college and support for child care. It also currently includes expansion of Medicare to include dental and vision coverage for the first time, as well as federal funding for home health care.
“There is nothing compassionate about spending money we don’t have on new benefits we can’t afford all the while discouraging work, and increasing the likelihood of a future default, when the yet to be born American receives the bill for benefits she didn’t experience and are no longer available,” Scott said.
“It’s also important to note,” he continued, “that our labor force participation rate is down, not up even with the new programs and the payouts that I heard this morning during this hearing that somehow is supposedly increasing our labor force participation, when in fact, it’s apparent and clear to Americans that’s not the case.”
According to the Committee for a Responsible Federal budget, the bill falls short of paying for itself in its current form.
“Due to a combination of larger tax breaks and less revenue collection, the Ways and Means Committee’s tax draft would net about $943 billion of revenue for other priorities, compared to $2.5 trillion from the White House proposals,” read a CRFB analysis. “That net revenue will be necessary, but likely not sufficient, to cover the cost of other spending proposals in reconciliation.”