“We’re doing everything we can to avoid further increases in energy prices … but we also want to make sure” Europe is weaned off its dependence on Russian oil and gas, Yellen said. “These pressures are unlikely to abate in the near future,” she added.
Yellen emphasized that she does not think the U.S. economy will fall into a recession, that the U.S. economy is well prepared to deal with economic risks, and pointed out that the economy has grown rapidly after the new crown virus recession. But she said Europe could be more “vulnerable” than the US because it is more dependent on Russian energy than the US.
“This is a risky environment, both in terms of inflation and a potential slowdown,” Yellen said.
Yellen’s comment is Gasoline costs rise above $4 a gallon For the first time in every state in the United States. Nationally, the average price of a gallon of gasoline is $4.52, and the cost is much higher in some states like California. The rise in energy prices comes on top of the U.S. economy already suffering the highest inflation in about 40 years, and gas prices are likely to rise further this summer as demand from consumers hits the road.
Yellen and G7 finance ministers are meeting in Germany this week to discuss global economic challenges and potential measures to deepen sanctions on Russia over its invasion of Ukraine. Officials faced an extraordinary set of challenges trying to balance efforts to punish Russia with new concerns about a global economic slowdown and high global inflation.
Yellen says sanctions are designed to inflict maximum pain impact on Russia while mitigating their impact on the rest of the world’s economies. She said U.S. officials have always understood that it is impossible to completely shield other countries from the effects of war.
“That’s always been at the heart of our conversation,” Yellen said.
Energy prices are one of their most vexing issues, as gas costs have risen since Russia invaded Ukraine in February, disrupting international markets. Europeans have discussed other measures to deprive Russia of revenue from oil and gas sales — the U.S. has banned energy imports from Russia — but any such move could push up prices further. Yellen told reporters on Tuesday that U.S. and European officials will discuss measures this week, including a price cap on European energy purchases from Russia, but no decisions have been made.
The Biden administration has taken several steps aimed at lowering natural gas prices, such as freeing up a significant portion of the country’s oil reserves and urging oil companies to ramp up production. The White House has also considered, but has not adopted, measures such as rebates for motorists and a federal gas tax break.
Consumer prices are likely to approach $5 a gallon this summer and will continue to rise as long as consumption continues to rise, said Bob McNally, president of energy consultancy Rapidan Energy Group. “So far, there has been little sign of meaningful layoffs. .”
“Consumer prices for both gasoline and diesel in the U.S. have soared to record highs and show no signs of abating,” McNally said. “While not every recession is triggered by a surge in oil prices, a surge in oil prices always causes or contributes to a recession.”
Yellen also said the U.S. could end sanctions waivers that allow Russia to pay interest on its debt, which could increase the likelihood of a Russian default and ripple through international markets.
She also pointed to her push for international aid to alleviate new hunger challenges caused by the war. Yellen directed international financial institutions to develop plans to address severe food shortages.
“This is important progress, but we need to redouble our efforts to ensure that people around the world can support their families,” Yellen said.