Yellen sees stronger labor market after US shakes off ‘shock’ from delta

Treasury Secretary Janet Yellen says that the U.S. economy is still on track for a strong recovery from the “very unusual shock” of the pandemic despite labor shortages and high inflation.

In an interview with MSNBC’s Stephanie Ruhle that aired Wednesday, Yellen expressed confidence that hiring troubles would fade and leave workers better off than they were before the pandemic as the U.S. shakes off a delta-driven slowdown.

Surging cases driven by the delta variant dramatically slowed job growth in August and September while redirecting a rising tide of consumer spending away from the hard-hit service sector and toward goods. Industries still struggling to recover from the pandemic saw job growth stall as the shift in spending stoked inflation and overloaded already overwhelmed supply chains.

Employers struggling to keep up with demand have raised wages significantly for workers, rising by 0.6 percent last month alone, which has also kept up pressure on inflation. Even so, Yellen said she expected progress against the pandemic to bring back workers at compensation levels that were long overdue.

“It’s good to see wages rise and working conditions improve for people working in low-wage sectors of the economy. This is something that we’ve wanted to accomplish for a long time,” she said.

“But of course, I think as the economy begins to recover, and demand returns to the service sector and as people feel we continue to address the pandemic, the supply of workers into that sector will surely expand in the future.”

President Biden and some Federal Reserve officials cede that while inflation has run higher and longer than they had anticipated — lingering at 5.4 percent annualized last month — it remains driven by the pandemic. But some moderate Democrats have grown increasingly concerned about rising prices, particularly as Republicans attempt to blame Biden and Democrats for the economic headwinds with the midterm elections looming.

Yellen acknowledged that small businesses may feel higher wage pressures than the mega-retailers who raised their minimum wages to $15 or above. But she argued that the upward pressure on wage growth and improvements in working conditions spawned by the high demand for labor were a long time coming.

“They may have to pay more and that will be part of the adjustment. But this is something that’s good for workers,” Yellen said.

“Many of the service sector workers have suffered from chronically low wages and from working conditions and benefits that leave them working — and this is true particularly of childcare workers, a good share of them really have to be on public assistance because they earn so little,” she continued. 

“So, you know, these are issues we’ll need to address.”

The heightened concern over inflation and hiring troubles has created obstacles for Biden and Yellen as they attempt to cement the president’s social services and climate plan. Both met with groups of House Democrats on Tuesday to hammer out the details with a self-imposed Oct. 31 deadline quickly approaching.

Democrats have been forced to make tough choices to meet the requirements of moderates such as Sen. Joe Manchin (D-W.V.), who have expressed deep concerns about the potential inflationary impact of further spending.

Biden administration officials and some left-leaning economists counter that the bill would not stoke price increases since the spending will be spread out broadly, and could help reduce inflation by increasing the size of the labor force.