After saying to knit the 7 stitches in waste yarn and slip them back to the left needle it says:
knit them again using working yarn; work in 4x1 Rib as set to end. Work 4 more rounds in 4x1 Rib.
YOu haven't added any stitches to the count of stitches per round. yes, continue to do your 4 x 1 rib, including the 7 stitches that will later become the thumbhole.