World

Prices may have to rise slightly to prevent the economy from overheating

Treasury Secretary Janet Yellen admitted on Tuesday that interest rates may have to be raised to curb the rapid growth of the US economy, partly brought about by trillions of dollars in government stimulating spending.

“It may be necessary to raise interest rates somewhat to prevent the economy from overheating,” Yellen said in an economic seminar presented by Atlantic. “Although additional spending is relatively small compared to the size of the economy, it can cause a very modest rise in interest rates.”

“But these are the investments our economy needs to be competitive and productive. I think our economy will grow faster because of them,” she added.

Since the Covid-19 outbreak in March 2020, Congress has allocated about $ 5.3 trillion in stimulus, with a budget deficit of more than $ 3 trillion in 2020 and $ 1.7 trillion in the first half of 2021. Brought a deficit.

The Biden administration is pushing for infrastructure plans that could cost an additional $ 4 trillion on various long-term projects.

She said the United States needed to focus on fiscal responsibility in the longer term, but said spending on central issues of the government’s mission had been ignored for too long.

Yellen said President Joe Biden “takes a very ambitious approach and actually makes up for more than a decade of inadequate investment in infrastructure, R & D, people, communities and SMEs.” It was. “But we have been working too long to make long-term problems worse for our economy.”

The Federal Reserve, led by Yellen from 2014 to 2018, has fixed short-term interest rates to near zero for over a year, despite the fastest growing economy in nearly 40 years. Central bank officials have vowed to maintain accommodative policies until the economy makes “substantial further progress” towards full and comprehensive employment and inflation, averaging about 2% in the long run. It was.

Inflation concerns have been raised by all spending and rapid growth, but federal officials said price pressures are likely to ease after a temporary rise this year.

Yellen said he was little concerned about inflation becoming a problem, but added that he had tools to deal with it if it happened. Federal Reserve Board Chair Jerome Powell recently said that higher interest rates are the main tool for controlling inflation.

“We need to pay for some of what we’re doing,” Yellen said, while the government still has “sufficient financial margin” for concerns about the huge deficit in the United States. Said.

Become a smarter investor CNBC Pro..

Get stock selection, analyst phone calls, exclusive interviews, and access to CNBCTV.

Sign up and get started Free trial today..

Prices may have to rise slightly to prevent the economy from overheating

Source link Prices may have to rise slightly to prevent the economy from overheating

Back to top button