“It’s important to note that professional forecasters think that inflation will substantially abate next year,” Yellen told a virtual event on The Davos Agenda. “Part of this view is likely driven by the expectation that the Federal Reserve will continue to account for these pressures as it fulfills its dual mandate.“
The Federal Reserve is mandated with ensuring healthy economic growth by keeping inflation at around 2% a year and targeting “maximum employment” among Americans, defined by a jobless rate of 4% or below.
On its first goal, the Federal Reserve slashed interest rates to almost zero after the outbreak of the coronavirus in March 2020, and has kept them there since in order to aid recovery.
As a result, the US Consumer Price Index grew by 7% in the year to December, expanding at its fastest rate since 1982, after trillions of dollars of relief spending by the government, higher wage payouts by companies and supply chain disruptions caused by the pandemic. The Fed now says it may have to execute a series of rate hikes to counter such inflation.
20 January 2022, 23:32 GMT
On the employment front, however, the US central bank has been more successful, bringing the jobless rate down to 3.9% by December from a record high of 14.8% in April 2020.
Yellen said even after inflation abates, policymakers are expected to have multiple challenges on their hands in the early stages of the post-pandemic era.
“Our economic recovery will face significant risks until we have moved more decisively past the pandemic,” she added.
The economy shrank by 3.5% in 2020 due to shutdowns and other disruptions caused by the pandemic. The Federal Reserve has projected a 5.5% growth for 2021 and 4% for 2022.