Janet Yellen Treasury Secretary of the US admitted on Tuesday that interest rates would have to increase, in order to contain the United States’ burgeoning economic growth, which has been fueled in part by trillions of dollars in government stimulus spending. “It is likely that interest rates will continue to rise somewhat in order to prevent our economy from overheating,” Yellen said at an economic forum organised by The Atlantic. “Even if the additional leverage is minor in relation to the size of the economy, it may result in some very minor interest rate increases.” “However, these are investments that our economy requires in order to be sustainable and efficient. “I believe our economy will expand faster as a result of them,” she said.
Later in the day, she softened her stance on the need for higher interest rates, saying she respected the Federal Reserve’s independence and was not attempting to control its decision-making. From 2014 to 2018, Yellen presided over the Federal Reserve. The Federal Open Market Committee, which is chaired by the Fed, determines interest rates. “It is not something I expect or recommend,” Yellen said at the Wall Street Journal CEO Council Summit. “If anybody appreciates the Fed’s integrity, I believe it is me, and I notice that the Fed should be relied on to do whatever is required to accomplish their dual mandate objectives.”
The American economy has been roaring, with first-quarter GDP growth of 6.4 percent. Goldman Sachs recently said that it expects the second quarter to rise by about 10.5 percent. After the Covid-19 pandemic began in March 2020, Congress had appropriated $5.3 trillion in stimulus funding, culminating in a more than $3 trillion budget gap in fiscal 2020 and a $1.7 trillion surplus in fiscal 2021’s first portion. The Biden administration is proposing an investment agenda that will cost an additional $4 trillion in long-term investments. Though, Yellen believes the United States should rely on fiscal responsibility in the long run, and she believes spending on issues fundamental to the government’s mission has been neglected for far too long.
According to Yellen, President Joe Biden is “taking a very optimistic stance, making up for over a decade of inadequate investment on technology, R&D, individuals, towns, and small businesses.” “However, we’ve allowed long-term problems to fester in our economy for way too long”, added Yellen. Despite an economy rising at the highest rate in nearly 40 years, the Fed has held short-term interest rates near zero for more than a year. Central bank officials have pledged to maintain accommodative policy until the economy makes “substantial more progress” toward complete and inclusive jobs and long-term inflation of about 2%.
Concerns over inflation have emerged as a result of all the investment and fast expansion, but Fed officials have said that after a brief increase this year, market pressures are expected to ebb. Yellen has said that she is not worried with inflation being a threat, but she has also stated that there are resources in place to deal with it if it does. Fed Chairman Jerome Powell recently said that raising interest rates is the primary method for controlling inflation. According to numerous media outlets, White House Press Secretary Jen Psaki said that Biden “certainly agrees with his Treasury secretary” on the possible need for higher prices. Concerned regarding the country’s high deficits, Yellen said that “we need to budget for some of the stuff that we’re doing,” but that the government also has “a fair amount of fiscal room.”
