said Tuesday she is neither predicting nor recommending that the Federal Reserve raise interest rates as a result of President Biden’s spending plans, walking back her comments earlier in the day that rates might need to rise to keep the economy from overheating.
“I don’t think there’s going to be an inflationary problem, but if there is, the Fed can be counted on to address it,” Ms. Yellen, a former Fed chairwoman, said Tuesday at The Wall Street Journal’s CEO Council Summit.
Ms. Yellen suggested earlier Tuesday that the central bank might have to raise rates to keep the economy from overheating, if the Biden administration’s roughly $4 trillion spending plans are enacted.
Ms. Yellen’s remarks come as lawmakers debate the merits of the administration’s spending proposals, which many Republicans have said are too costly and risk stoking inflation. Consumer prices jumped 2.6% in the year ended in March, compared with a 1.7% rise in February. And long-term Treasury yields have risen on signs of economic strength and expectations that the Fed will have to raise rates sooner than officials have signaled.
“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.
Ms. Yellen told The Wall Street Journal that she expects any near-term increases in inflation will be temporary. She echoed remarks from Fed Chairman
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 subside.
The U.S. economy is poised for a rapid recovery this year, as newly vaccinated Americans flush with hundreds of billions of dollars in federal stimulus money increase spending. Gross domestic product climbed at a 6.4% seasonally adjusted annual rate in the first quarter, bringing the U.S. economy within 1% of its pre-pandemic peak.
Despite an improving economic outlook, most Fed officials expected to maintain ultralow interest rates through 2023, according to projections submitted at their March policy meeting. Just seven of 18 policy makers anticipated lifting rates in 2022 or 2023.
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