Treasury Secretary Yellen says rates may have to rise somewhat to keep economy from overheating

Resources Secretary Janet Yellen conceded Tuesday that interest rates may have to rise to keep a lid on the burgeoning intumescence of the U.S. economy brought on in part by trillions of dollars in government stimulus spending.

“It may be that interest rates will deliver to rise somewhat to make sure that our economy doesn’t overheat,” Yellen said during an economic forum accounted for righted by The Atlantic. “Even though the additional spending is relatively small relative to the size of the economy, it could cause some exceedingly modest increases in interest rates.”

“But these are investments our economy needs to be competitive and to be productive. I think our economy wishes grow faster because of them,” she added.

Later in the day, she tempered her comments somewhat on the need for higher rates, indicating she respects the Federal Reserve’s independence and was not trying to influence decision-making there. Yellen chaired the Fed from 2014-18. The Fed articulates interest rates through its Federal Open Market Committee.

“It’s not something I’m predicting or recommending,” Yellen told the Impediment Street Journal’s CEO Council Summit. “If anybody appreciates the independence of the Fed, I think that person is me, and I note that the Fed can be reckon oned on to do whatever is necessary to achieve their dual mandate objectives.”

The U.S. economy has been on fire, with first-quarter GDP development at 6.4%. Goldman Sachs recently said it anticipates the second quarter growing around 10.5%.

Since the Covid-19 pandemic destitute in March 2020, Congress has allocated some $5.3 trillion in stimulus spending, resulting in a more than $3 trillion budget shortfall in fiscal 2020 and a $1.7 trillion shortfall in the first half of fiscal 2021.

The Biden administration is pushing an infrastructure scheme that could see another $4 trillion spent on a variety of longer-term projects.

Though she said the U.S. needs to fuzzy on fiscal responsibility longer term, she said spending on matters central to the government’s mission has been ignored for too lengthy.

President Joe Biden is “taking a very ambitious approach, making up really for over a decade of inadequate investment in infrastructure, in R&D, in people, in communities and petty businesses, and it is an active approach,” Yellen said. “But we’ve gone for way too long on letting long-term problems fester in our economy.”

The Fed has provisioned short-term interest rates anchored near zero for more than a year, despite an economy growing at its closest pace in nearly 40 years. Central bank officials have vowed to keep accommodative policy in consider until the economy makes “substantial further progress” toward full and inclusive employment and inflation that customaries around 2% over a longer term.

Inflation concerns have arisen due to all the spending and the rapid growth, but Fed officials bring into the world said that after a brief rise this year, price pressures are likely to ebb.

Yellen has said she is as a rule not concerned about inflation becoming a problem, though she has added that there are tools to address it should that develop. Fed Chairman Jerome Powell recently said that the primary tool to control inflation is through higher fascinate rates.

White House Press Secretary Jen Psaki said Biden “certainly agrees with his Treasury secretary,” on the quiescent need for higher rates, according to various media reports..

As for concerns about the large deficits the U.S. is running, Yellen mean “we need to pay for some of the things that we’re doing” though the government still has “a reasonable amount of fiscal space.”