Yellen Spooks Investors With Talk of Rate Hikes – By The Fiscal Times Staff (The Fiscal Times) / May 4 2021
Plus, Biden sets a new goal for Covid vaccinations
Yellen Spooks Investors With Talk of Rate Hikes
Treasury Secretary Janet Yellen suggested in an interview with The Atlantic that interest rates may have to rise to keep the economy from overheating if President Joe Biden’s spending plans are enacted.
“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,” Yellen said In a prerecorded interview that aired Tuesday. “So it could cause some very modest increases in interest rates to get that reallocation, but these are investments our economy needs to be competitive and to be productive. I think that our economy will grow faster because of them.”
Interest rate policy is set by the Federal Reserve, not the Treasury Department, and current Fed chair Jerome Powell has said repeatedly that the central bank is not close to raising rates and believes that any rise in inflation will be short-lived. “We’ve been living in a world of strong deflationary pressures – around the world, really – for a quarter of a century, and we don’t think that a one-time surge in spending leading to temporary price increases would disrupt that,” Powell said in testimony before Congress in March.
Still, the remarks by Yellen, a former Fed chair, appeared to contribute briefly to a stock market dip Tuesday, given that they “seemed to suggest that White House officials were acknowledging that inflationary pressures were a growing concern,” as The Washington Post put it. Asked about Yellen’s comments, the White House said that it was closely monitoring inflation. “We take inflationary risk incredibly seriously,” White House Press Secretary Jen Psaki said.
CONTINUE > https://www.thefiscaltimes.com/newsletter/20210504-Yellen-Spooks-Investors-Talk-Rate-Hikes
