US Treasury Chief Janet Yellen, former Fed chief, said interest rates may need to be raised to prevent the economy from overheating.
On Tuesday, during a speech at an economic forum presented by The Atlantic, Treasury Chief Janet Yellen said that interest rates may need to be raised.
The major indices of the S&P 500 and Nasdaq Composite on Tuesday fell 0.67% and 1.88%, respectively, while the Dow Jones index changed slightly.
To date, the Fed has been holding rates at zero since March 2020, when the COVID-19 pandemic began in the United States. Since then, however, the country’s government and central bank have taken a series of steps to inject money into the affected economy.
Congress has allocated about $ 5.3 trillion. to stimulate economic growth, which led to a budget deficit of more than $ 3 trillion. in 2020 and a deficit of $ 1.7 trillion. in the first half of 2021.
The allocated funds helped to carry out a rapid large-scale vaccination against coronavirus, which helped to reduce the number of diseases and restore consumer demand. US GDP in the first quarter of 2021 grew by as much as 6.4%.
However, following the April FOMC meetings last week, Fed officials reiterated that they are not planning to raise rates for the next two years yet, waiting for the labor market to fully recover and allowing inflation to rise above 2%.
US Treasury Secretary Janet Yellen, who chaired the Fed from 2014 to 2018, expressed her opinion on the rate hike, noted that she did not give forecasts or recommendations to the Fed. Yellen said she does not intend to influence the Fed’s decision and values the independence of the central bank.
Currently, President Joe Biden’s administration and Democrats are pushing two major new packages to further stimulate the economy: an infrastructure stimulus package called the American Employment Plan and the Plan for American Families, which will require about $ 3.25 trillion.
Yellen supports these ambitious projects of Biden, while her tasks are to find tax revenues and ways to replenish the budget.
The minister said that “the United States needs to focus on financial responsibility in the longer term.”
White House spokeswoman Jen Psaki said Biden “definitely agrees with his Treasury Secretary” on the potential need for a rate hike, according to various media reports.
Regarding the issue of inflation risks, Yellen said that they do not bother her too much, as there are tools to solve this problem.
Fed Chairman Jerome Powell recently said that higher interest rates are the main tool for controlling inflation.