Janet Yellen insists new Biden investment will counter high US inflation

Treasury chief says renewable energy spending can help to bring down high petrol prices

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US Treasury Secretary Janet Yellen urged legislators to approve additional investment in renewable energy and higher taxes on the wealthy on Tuesday, as she defended the administration's efforts to blunt the effects of inflation.

Ms Yellen was updating the Senate Finance Committee in the first of two days of testimony on President Joe Biden's budget for the 2023 fiscal year.

"I believe there's a lot that Congress can do to ease the cost burdens that households are experiencing," she said.

Besides renewable energy investment — which Ms Yellen said could help address high petrol prices — the Treasury Secretary backed more spending on housing and efforts to rein in pharmaceutical prices.

She highlighted the Biden administration's historically large release of oil from the Strategic Petroleum Reserve to ease the cost for drivers at the pump, which have skyrocketed since the Russian invasion of Ukraine, hitting record prices daily, with the national average at $4.92 a gallon on Tuesday.

"Gas prices, while very high ... would be higher without that," Ms Yellen said.

The hearings come as Mr Biden contends with a low favourability rating before crucial midterm elections, with the pain from higher petrol and food prices outweighing a strong job market and 3.6 per cent unemployment.

Ms Yellen was warmly received by Senate Democrats, but Republicans highlighted the administration's energy and climate policies as a reason for the current crunch and characterised the government's 2021 American Rescue Plan as a main reason for inflation.

"What I heard you say is that it is OK to raise taxes right now and that it is proper to have more stimulus spending to deal with this crisis," said Senator Mike Crapo, a Republican representing Idaho.

"I just have to say I disagree with you on that."

Ms Yellen defended the American Rescue Plan, saying the administration took action in response to forecasts that unemployment could top 9 per cent given the headwinds amid the Covid-19 upheaval.

At the time, she said "the overwhelming risk was that Americans would be scarred by a deep and long recession".

Updated: June 08, 2022, 5:41 AM