Former Treasury Secretary Janet Yellen predicts that despite a declining trend in US inflation, President Donald Trump’s tariffs will raise prices and reduce average household income.
“We expect inflation to end at least 3% or even slightly due to tariffs this year compared to the previous year.”
The Biden-era Cabinet Secretary made the prediction about Trump’s tariffs, even if he said there was “uncertainty about exactly what will be implemented.”
But “We definitely look forward to seeing them affect prices,” she said.
That would reduce the average household income, Yellen added. “The latest optimistic estimates I’ve seen suggest that the average household is seen in the order of a $1,000 reduction in income,” she said.
“That could be greater than that, depending on how things work in the customs program,” she said.
Comments came from U.S. Bureau of Labor Statistics data showed that inflation rates have not risen higher than expected in recent months.
Trump points out the trend, promoting his latest attack on Federal Reserve Chairman Jerome Powell to lower interest rates. At the White House later Thursday, Trump accused Powell of “Numbskull.”
Meanwhile, Trump’s allies have argued that tariffs do not contribute to inflation.
Yellen, who chaired the Fed from 2014 to 2018, also said central banks should be “worried about the impact of the second round, wage increases, or the possibility that inflation expectations could be supplied to continued inflation.”
The Fed does not have a “good treatment of how tariffs affect either labour market spending or inflation,” she said.
“So they’re going to expect to stay firmly in the incubation period,” she added.