WASHINGTON — Treasury Secretary Janet L. Yellen on Thursday said she believed it was time to retire the term “transitory” to characterize inflation as temporary and suggested that the Omicron variant of the coronavirus could prolong the problem of rising prices.
Speaking at an event sponsored by Reuters, Ms. Yellen said that over the summer it appeared that the pandemic was subsiding and that the economy would soon normalize. The spread of new variants, she said, has changed that calculus.
“Now the new variant, the Omicron variant, the pandemic could be with us for quite some time and hopefully not completely stifling economic activity but affecting our behavior in ways that contribute to inflation,” Ms. Yellen said.
Ms. Yellen’s remarks echoed those of Jerome H. Powell, the Fed chair, who said earlier this week that inflation was more than a short-term issue.
“I am ready to retire the word transitory,” Ms. Yellen said. “I can agree that that hasn’t been an apt description of what we are dealing with.”
The Treasury secretary said that it was too soon to say what impact Omicron would have on the economy, noting that it could snarl supply chains and fuel further inflation, but that if it dampened economic growth it could blunt price increases. She warned, however, that it could cause “significant problems.”
“We’re very uncertain at this point just how significant a threat it’s going to be and closely watching the scientific evidence on this that’s accumulating,” Ms. Yellen said. “Hopefully it’s not something that’s going to slow economic growth significantly.”
She added: “This could again exacerbate supply chain and inflation problems.”
Ms. Yellen, a former Fed chair, said that the central bank was committed to using its tools to contain inflation but said there was little it could do to ease clogged supply chains. She said that Mr. Powell’s suggestion this week that the Fed would consider speeding up its plan to withdraw financial support from the economy “makes sense.”
“What we don’t want to have develop is a wage-price spiral, in which inflation becomes its own self-reinforcing kind of phenomenon that would become chronic in the U.S. economy, something endemic,” Ms. Yellen said.