Yellen Says Interest Rates May Have to Rise to Keep Economy From Overheating -- Update
By Kate Davidson
WASHINGTON -- Treasury Secretary Janet Yellen said Tuesday that
it is possible the Federal Reserve may have to raise interest rates
to keep the economy from overheating if the Biden administration's
spending plans are enacted.
President Biden has proposed roughly $4 trillion of new spending
on infrastructure and social programs over the next decade,
including funding for roads and bridges, research and development,
affordable child care and paid family leave.
"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 a prerecorded interview at the Atlantic's
Future Economy Summit.
The remarks come amid recent signs that inflation is picking up.
The Labor Department's consumer-price index jumped 2.6% in the year
ended in March, compared with a 1.7% rise in February. The Fed's 2%
inflation goal is linked to a different measure that tends to run a
Fed Chairman Jerome Powell reiterated last week that the central
bank isn't worried about a persistent rise in inflation and that he
expects that price increases over the coming months will be
Ms. Yellen, who previously served as chairwoman of the central
bank, said Tuesday the administration's spending plans would
involve some reallocation of resources within the economy, which
"could cause some very modest interest increase in interest
But she emphasized that the investments, such as worker
training, free community college and more funding for research and
development, are needed to make the U.S. economy competitive and
"I think that our economy will grow faster because of them," she
Asked whether President Biden agreed with Ms. Yellen's
assessment, White House spokeswoman Jen Psaki told reporters
Tuesday afternoon that the president certainly agrees with his
Treasury secretary and that the White House is keeping a close eye
on price pressures.
"We also take inflationary risks incredibly seriously, and our
economic experts have conveyed that they think this would be
temporary and that the benefits far outweigh the concern," she
Write to Kate Davidson at email@example.com
(END) Dow Jones Newswires
May 04, 2021 14:26 ET (18:26 GMT)
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