Janet Yellen warns US inflation is 'unacceptably high' after June data shocker

Treasury Secretary Janet Yellen said on Thursday the U.S. faces "unacceptably high" levels of inflation and pledged that bringing down rising prices is the biggest priority for the Biden administration after another searing-hot inflation report. 

"Inflation is unacceptably high, and that's something that's evident from Wednesday's report," Yellen said during a news conference in Bali ahead of the Group of 20 finance ministers' meeting. "And I believe it's appropriate that it's our top — it should be the top priority to bring inflation down."

Her comments came just one day after the Labor Department reported that the consumer price index, a broad measure of the price for everyday goods, including gasoline, groceries and rents, rose 9.1% in June from a year ago. Prices jumped 1.3% in the one-month period from May. Those figures were both far higher than the 8.8% headline figure and 1% monthly gain forecast by Refinitiv economists, underscoring just how strong inflationary pressures still are in the economy. 

It marks the fastest pace of inflation since December 1981. 

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Yellen said the White House is hoping to provide relief to American households squeezed by inflation with a reconciliation bill that could reduce prescription drug costs and by releasing an unprecedented amount of oil from the nation's emergency stockpile. She also noted the Biden team is working on placing a price cap on Russian oil in order to "avoid potential future spikes in oil prices." 

Almost half of the increase in prices in the June inflation data stemmed from high energy costs, she said. Energy prices rose 7.5% in June from the previous month, and are up 41.6% from last year. 

However, another data point that measures so-called core prices, which exclude more volatile measurements of food and energy, climbed 5.9% from the previous year. Core prices also rose 0.7% on a monthly basis – higher than in April and May – suggesting that inflation is more widespread than the administration has acknowledged. 

Yellen largely put the onus on the Federal Reserve, which is tasked with a dual mandate: maintaining price stability and achieving maximum employment. 

"We're first and foremost supportive of the Fed’s efforts — what they see, deemed to be necessary to get inflation under control," Yellen told reporters. "And beyond that, we're taking our own steps that we believe will be supportive in the short term to get inflation down."

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Fed policymakers already raised the benchmark interest rate by 75 basis points last month for the first time since 1994 and have confirmed that a similarly sized increase is on the table in July. 

With inflation running even hotter than economists expected in June, Wall Street is now ramping up the odds of a mega-sized, 100-basis point hike in July. About 83% of traders are now pricing in the chances of a 100-basis point increase later this month, according to the CME Group's FedWatch tool, which tracks trading.

Still, the Fed is in a precarious situation as it walks the line between cooling consumer demand and bringing inflation closer to its 2% target without inadvertently dragging the economy into a recession. Hiking rates tends to create higher rates on consumer and business loans, which slows the economy by forcing employers to cut back on spending. 

When asked whether she believed bringing down inflation is more important than the threat of recession, Yellen reiterated that it should be the White House's top priority and noted the labor market is in "good shape."