Former US Treasury Secretary Janet Yellen predicted that although the US inflation rate is showing a slowing trend, President Trump’s tariff policy will lead to higher inflation and a decline in average household income. Yellen said on a program on Thursday: “I expect that due to the impact of tariffs, the inflation rate this year will reach at least 3%, or slightly higher than 3%”. However, she also pointed out that there is still a great deal of uncertainty regarding which tariff measures will come into effect.
Yellen added that this would reduce the average household income, with the latest and most optimistic estimate indicating that due to tariffs and their ripple effects, the income of an ordinary household will decrease by around $1,000. “The figure could be even higher, depending on the progress of the tariff plan,” she said.
As Yellen made these remarks, data from the Bureau of Labor Statistics showed that the increase in the inflation rate in recent months was lower than expected. Data released on Wednesday showed that the US consumer price index (CPI) rose by 0.1% month-on-month and 2.4% year-on-year in May, both lower than market expectations of 0.2% and 2.5%, respectively. Core CPI, which excludes food and energy costs, rose by 2.8% year-on-year, remaining at its lowest level since March 2021 and also lower than market expectations of 2.9%.
The cooling of inflation has prompted US President Trump to increase pressure on Federal Reserve Chair Powell, demanding that the latter lower interest rates. Trump lashed out at Powell at the White House on Thursday as a “fool” and claimed that lowering interest rates by 2 percentage points could save the United States $600 billion annually.
Meanwhile, Trump’s allies also argued that tariffs would not exacerbate inflation. Yellen, who served as the chairperson of the Federal Reserve from 2014 to 2018, said that the Fed should now “be concerned about the second round of effects, or the possibility of sustained inflation caused by rising wages or inflation expectations”. She pointed out that the Federal Reserve “cannot accurately grasp how tariffs will affect labor market spending or inflation”. “So I expect (the Fed) to remain firmly on hold,” she added, suggesting that the Fed might continue to adopt a wait-and-see approach.
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