The crisis to which he referred was a “K-shaped” economic recovery that had exacerbated inequality in the wake of a once-in-a-generation pandemic. The administration had a simple plan, and Yellen would help carry it out. Once hundreds of millions of Americans were vaccinated against Covid-19, and trillions of dollars in new government spending flowed into the economy, the world would return to normal under a supercharged recovery.
One year later, a different problem — inflation — is dampening the recovery, sucking the oxygen out of strategy sessions, angering voters and threatening Democrats’ razor-thin governing margins. This is happening despite warnings from economists and months of vows from the Federal Reserve and the White House it would be short-lived.
Yellen, having herself helmed the central bank, which is tasked with monitoring and managing inflation, would seem uniquely suited for a moment when inflation is hitting four-decade highs. So how did the Biden administration miss the warning signs, and end up in this position?
More than a dozen economists, current and former administration officials, and former Fed officials — requesting anonymity to speak candidly about private discussions — point to a confluence of issues, including heavy Fed influence across the administration, overreliance on traditional forecasting, the political pressure to spend big, and a lack of urgency in deciding who would run the Federal Reserve and carry out its mission of managing inflation.
