May 2, 2024
Inflation impacts everyone by eroding the purchasing power of money. However, despite rising price levels in the U.S., Treasury Secretary Janet Yellen maintains that Americans are not worse off.
During a recent House Ways and Means Committee hearing, Yellen stated, “People generally are better off in spite of the price increases.”
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This statement has ignited significant backlash on social media.
Along with sharing the news, the X account for finance newsletter “The Kobeissi Letter” launched a poll to gauge public sentiment, asking, “Are you better off than you were 5 years ago?” As of Thursday, over 8,600 individuals had participated, with 82.1% expressing disagreement by voting "No."
Many users on X expressed their disagreement with Yellen’s statement. For instance, Billy Markus, the creator of cryptocurrency Dogecoin, responded to The Kobeissi Letter’s query about agreeing with Yellen’s comments by stating, “No, that is deranged.”
Another user, Anthony Sandford, labeled Yellen’s perspective as “absolutely out of touch.”
Sandford questioned, “If people are better off then why are people saying they’re going to cut back on eating out, entertainment, clothing, and vacations?” He supported his argument with an infographic from a recent Consumer Confidence Survey that illustrates the areas where consumers intend to reduce spending.
Meanwhile, Keith McCullough, CEO of Hedgeye Risk Management, simply responded to Yellen’s statement with a “LOL.”
Here’s a closer look at the reasoning behind Yellen’s claim.
Yellen: Inflation has come down considerably
During the hearing, Yellen pointed out that inflation “has come down considerably.”
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“The measure that the Federal Reserve focuses on most, over the last 12 months, ran at 2.7%,” she explained.
Yellen is referring to the personal consumption expenditures (PCE) price index, which rose 2.7% in March 2024 from a year ago. This is up from a 2.5% annual increase in February but down significantly from its June 2022 peak of 7.1%.
The consumer price index (CPI) follows a similar trend, registering an annual increase of 3.5% in March 2024, a decrease from its peak of 9.1% in June 2022.
Although these inflation rates have decreased, it doesn't imply a reduction in prices; rather, the cost of many necessities remains high. For example, the food index from the CPI has increased by 25% since the beginning of 2020. Similarly, the shelter index has risen by 22% during the same period.
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Are Americans better off?
A key aspect of Yellen's argument concerns wage growth.
“What's important to households, of course, they see that the prices of many goods they bought pre-pandemic are higher — not all but some — is that their wages have gone up by more than that, so their purchasing power, their inflation adjusted incomes are higher, not lower,” she stated.
Yellen referenced the newly released data on the employment cost index, which tracks changes in hourly labor costs for employers over time. According to the latest report, inflation-adjusted wages and salaries rose by 0.8% in the 12 months ending March 2024.
During her testimony, she also mentioned that household median wealth has increased since before the pandemic, the unemployment rate has been below 4% for the longest stretch in over 50 years and consumer sentiment is up 21% from one year ago.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
