Politics Yellen says interest rates may need to increase

20:15  04 may  2021
20:15  04 may  2021 Source:   thehill.com

Yellen's goof hands GOP a potent campaign issue

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Treasury Secretary Janet Yellen on Tuesday said that interest rates may need to increase to keep the recovering economy from going into overdrive on the heels of significant government spending.

a person sitting in a chair talking on the phone: Treasury Secretary Janet Yellen © Getty Images Treasury Secretary Janet Yellen

"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," she said in response to a question on a panel hosted by The Atlantic about whether the economy could absorb the large dose of spending President Biden was proposing.

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  Janet Yellen says critics of Biden's tax hikes are asking the wrong question Doctors follow the Hippocratic oath: do no harm. The architects of President Joe Biden's tax increases took a somewhat different approach. © Alex Wong/Getty Images WASHINGTON, DC - DECEMBER 13: Federal Reserve Chair Janet Yellen speaks during her last news conference in office December 13, 2017 in Washington, DC. Yellen announced that the Federal Reserve is raising the interest rates by a quarter point to 1.5%. (Photo by Alex Wong/Getty Images) They want some proposals, like the elimination of fossil fuel subsidies, to harm particular economic activities.

"Even though the additional spending is relatively small relative to the size of the economy, it could cause some very modest increases in interest rates," she added.

Critics of the major spending push have warned that it will push up prices, as government funds boost demand faster than production of supply can keep up.

Were inflation to take hold in a serious way, it would erode purchasing power, particularly for low earners, and could require interest rate hikes to get inflation back in line. An increase in interest rates could slow or even reverse the economic recovery.

Federal Reserve Chairman Jerome Powell has said that the recent uptick in prices is likely to be temporary and that he doesn't expect interest rates to rise this year, but that the central bank is closely monitoring inflation.

Stock markets, which have in recent months sunk on signs of higher inflation and concerns about rising interest rates, did not react significantly to Yellen's comments, which may have referred to market borrowing rates as opposed to the base rate set by the federal reserve.

Yellen said that the roughly $4 trillion that Biden has proposed in infrastructure spending and family support programs would ultimately boost the economy.

"These are investments our economy needs to be competitive and to be productive. I think that our economy will grow faster because of them," she said.

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President Joe Biden has a lot on his plate right now. But he'll soon need to make an important decision about the future of the Federal Reserve — a choice that will help shape his administration's economic policy in the coming years. © Al Drago/Pool/Getty Images Chairman of the Federal Reserve Jerome Powell testifies during a Senate Banking Committee hearing about the quarterly CARES Act report on Capitol Hill December 1, 2020 in Washington, DC. Treasury Secretary Steven Mnuchin also testified at the hearing.

usr: 0
This is interesting!