Yellen: Stimulus Added to Demand in ‘Supply-Constrained’ Areas, ‘May Have Played a Little Bit of a Role’ in Inflation

During an interview with CNN’s “Axe Files” podcast released on Thursday, Treasury Secretary Janet Yellen said that the spending in the American Rescue Plan “added to the demand in areas that were supply-constrained, and so, may have played a little bit of a role” in inflation.

Yellen said, [relevant remarks begin around 43:35] “We never would have seen that inflation just because of the demand that was created. It was the supply shock created by the pandemic, the fact that you couldn’t get semiconductors to produce cars, that we had auto factories that had to close that caused prices to spike. Now, the fact that incomes were supported and people had money to buy say, cars or consumer durables when they were shut in, that added to the demand in areas that were supply-constrained, and so, may have played a little bit of a role. But the major problem was supply disturbances, shutdowns of factories in China, container ships that were unable to unload their goods, it would take weeks before they could unload goods at ports, huge shifts in demand away from services — going out to eat, traveling, and the like — to goods that were in short supply. It was a very unique situation.”

She also stated that healthcare and childcare costs have been trending up since before the pandemic and there is a shortage of housing, some of which the pandemic worsened.

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