Treasury Secretary Janet Yellen warned on Thursday that prices could climb for several months longer, while she expects the recent spectacular inflation run to slow over time. In a CNBC interview, the Cabinet official expressed concern about the impact of inflation on lower-income families wanting to purchase homes at a time when real estate values are rising. Yellen told Sarah Eisen on “Closing Bell” that “we will have several more months of strong inflation.” “So this isn’t a one-month phenomenon, in my opinion. However, I believe that inflation will return to normal in the medium future. But we must, of course, keep a close eye on it.” In June, the consumer price index, which tracks prices across a wide range of goods and services, rose by 5.4 percent, the quickest rate in over 13 years. Taking food and energy out of the equation, the index increased by 4.5 percent, the fastest increase in over 30 years. Prices paid to manufacturers of goods and services increased by 7.3 percent, setting a new high for data dating back to 2010. In addition, according to the most recent S&P CoreLogic Case-Shiller data, home prices in the country’s major cities increased by about 15%. All of this has raised concerns that inflationary pressures could stymie the US economy’s rapid rebound, particularly as property prices continue to rise, sparking suspicions of a housing bubble. “So I don’t think we’re seeing the same types of dangers here as we were in the run-up to the financial crisis in 2008,” Yellen added. “This is a whole distinct thing. However, I am concerned about affordability and the stress that rising house prices would have on first-time home purchasers and low-income families.” Yellen said she is encouraged by market-based metrics that imply prices will fall in the long run, despite consumer surveys indicating increased inflation expectations. Despite the inflation concerns, the 10-year Treasury yield, which is used as a growth benchmark, has dropped below 1.3 percent after climbing a full percentage point to roughly 1.75 percent between October 2020 and March 2021. Chart for loading… Other indicators, such as a commonly used market measure of the yield discrepancies between 5- and 10-year Treasurys and inflation-indexed bonds with the same maturities, have dipped from 13-year highs reached in May. “Inflation expectations measures, I believe, remain well-contained over the medium term,” Yellen added. “Those expectations are, in fact, a driving force behind pricing decisions. As a result, it’s critical that we keep a close eye on it. But, you know, I believe this is something that will eventually settle down.” She explained that Treasury yields are “the market expressing its opinion that inflation remains under control.” Yellen said as Federal Reserve Chairman Jerome Powell was grilled by House and Senate legislators this week on whether the Fed’s historically loose monetary policy and robust legislative spending were risking runaway inflation. During the epidemic, the Federal Reserve, which Yellen once oversaw, increased its balance sheet to over $8 trillion, while Congress is facing a $3 trillion budget deficit for the second year in a row. Powell stated that the Fed is “uncomfortable” with the present rate of inflation, but he believes it will decline when the pandemic’s unique features fade and conditions return to normal. Yellen, for one, believes that investment connected with the White House-backed American Rescue Plan is aiding recovery. “I believe we’re seeing it have the desired effect as well,” she said, referring to the prevention of scars and financial hardship to families. CNBC Pro can help you become a better investor. Get stock recommendations, analyst calls, exclusive interviews, and CNBC TV access. To begin your free trial, simply fill out the form below./n
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