Treasury Secretary Janet Yellen says higher interest rates may be needed so economy doesn't 'overheat'
- It might be necessary to lift
interest ratesto keep the economyfrom overheating, Janet Yellensaid.
Treasury Secretary's comments contrast with the Fed's plans to hold rates near zero through 2023.
- Some experts fear Biden's latest spending plans risk dangerously strong inflation.
Treasury Secretary Janet Yellen is among the country's most experienced economic policy experts.
A veteran of the Clinton and Obama administrations, Yellen has long been characterized as an economist closely associated with the center-left. That changed after the slow recovery from the Great Recession saw her transform into an ultra-dove, urging stimulus to hasten the recovery in 2010.Now, as Treasury Secretary for President Joe Biden, she presides over a level of stimulus unseen since World War II - and she is sounding suddenly hawkish, especially in her remarks which aired Tuesday that higher interest rates might be necessary to keep the economy from overheating.
Yellen later clarified she doesn't expect inflation to pose a lasting threat to the recovery, and that she wasn't calling for any rate changes."It's not something I'm predicting or recommending," Yellen said of
After roughly a year of virus-induced lockdowns and dire economic fallout, the US is expected to rebound throughout 2021 as vaccines open the door to a full recovery. Acceleration of hiring and consumer spending have led economists to lift their growth forecasts, something that would ordinarily lead the Fed to raise interest rates. But the
"It may be that interest rates will have to rise somewhat to make sure that our economy doesn't overheat, even though the additional spending is relatively small relative to the size of the economy," the former
The statement marks a sharp contrast from not just the Fed's messaging, but the administration's past remarks as well. The central bank has repeatedly said it expects inflation to trend higher as the economy reopens before fading back to a more moderate level soon after. Biden's Council of Economic Advisors expressed a similar outlook in an April blog post, adding the White House will keep an eye out for "any signs of unexpected price pressures."It's not the first time Yellen's hawkishness has butted heads with the administration's ambitions. The Treasury Secretary indicated to the White House that she would be an "obstacle" to deficit spending, according to a report from The American Prospect, dashing Progressives' hopes for huge spending on a wide range of investments.
Biden's plans to offset new spending with an array of tax hikes signals he and Yellen are moving in lockstep. The White House backed up the notion on Tuesday.
"The president certainly agrees with his Treasury Secretary," White House Press Secretary Jen Psaki said in a press conference, adding "Yellen certainly understands" the Fed's independence from the administration.Inflation is only just starting to appear as state and local governments gradually reopen their economies. The government's quarterly report on economic growth showed prices climbing at nearly a decade-high rate in the first three months of the year. Factory bottlenecks, strengthening consumer demand, and supply-chain disruptions all stand to drive price growth higher still in the months ahead.
"We've gone for way too long letting long-term problems fester in our economy," Yellen said. "I think we have a reasonable amount of fiscal space."
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