To determine if inflation is more than a passing affair, Ms. Yellen monitors two key metrics: inflation expectations and wage increases for low paid workers. Rising wages for the lowest-paid workers could potentially lead to an “inflationary trend” if there is a large excess demand for labor in the labor market, she warned.
“We do not want a persistent excess demand in the economy, which leads to wage and price pressures that build up and become endemic,” said Ms. Yellen. “When you look at wage increases, you can have a wage price spiral, so you have to be careful.”
She added, “I don’t see this happening now.”
At the G7 meeting, Ms. Yellen raised her eyebrows when she said inflation could stay around 3 percent higher for the remainder of the year. However, in the interview, she said that the comment was misinterpreted. She said she expected inflation rates to rise over the next several months, but then settle down in line with the 2 percent rate that is the Federal Reserve’s long-term goal.
“I don’t see any signs that inflation expectations are getting out of hand,” said Ms. Yellen.
Critics have suggested that the Biden government’s expansion of pandemic unemployment insurance is fueling labor shortages by encouraging workers to stay home and receive generous benefits. At least 20 states have moved to cut benefits early to encourage people to return to work.
Ms. Yellen said that states’ different ways of handling unemployment benefits may shed new light on the dynamics, but that she still sees no evidence that the addition is slowing job creation. As a more likely cause of employers struggling to find staff in some sectors, she pointed to a lack of childcare and permanent job losses due to the pandemic.
“We wanted to support the people,” said Ms. Yellen. “It shouldn’t be forever.”
Although the economy is improving, Ms. Yellen said seven million jobs that have been lost since the pandemic have still not been restored. Some of them may never come back.
“We are not currently in a tight job market,” she said.