US Treasury Secretary Janet Yellen has downplayed comments that rate hikes may be needed to stop the economy overheating as Joe Biden’s spending plans boost growth.
Yellen yesterday said that she sees no inflation problem brewing, after her previous comments deepened a sell-off in tech stocks and pushed longer-dated Treasury yields higher.
What has Yellen said?
“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,” Yellen told a virtual event put on by The Atlantic.
“It could cause some very modest increases in interest rates to get that reallocation, but these are investments our economy needs to be competitive and to be productive (and) I think that our economy will grow faster because of them.”
Later on Tuesday, Yellen told a Wall Street Journal event that she does not think that inflation will be an issue for the US economy and that any price surges would be due to supply chain shortages.
Asked directly about her remarks on rates, Yellen said she was neither predicting nor recommending a rate rise.
“If anybody appreciates the independence of the Fed, I think that person is me. I do not think there’s going to be an inflationary problem. But if there is, the Fed will be counted on to address them,” she added.
Treasury bond yields have risen sharply during the first quarter of the year, on growing expectations for an economic recovery from the coronavirus recession.
The yield on the benchmark 10-year Treasury note was 1.58 per cent following Yellen’s comments yesterday.
“I don’t think it was meant to be an impactful statement that yields will have to rise now,” TD Securities interest rate strategist Gennadiy Goldberg, said of Yellen’s initial remarks.