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U.S. Treasury Secretary Janet Yellen warned Tuesday that interest rates will need to rise over time to keep the U.S. economy from warming, increasing the sale of technology stocks before clarifying her notes during the day.
Former Federal Reserve Chairman Biden administration has commented on $ 4 million in infrastructure and welfare expenditure over the next decade, more than $ 1.9 billion in economic stimulus this year pandemic.
“Interest rates may need to rise slightly to ensure that our economy doesn’t overheat, even if the additional spending is relatively small compared to the size of the economy,” he said at an event hosted by The Atlantic magazine. .
“So it can lead to very modest interest rate hikes to achieve that relocation. But they are investments that our economy needs to be competitive and productive.”
Yellen’s notes that Biden’s $ 1 trillion in federal spending projected, along with the quick insertion, caught the attention of investors and economists who are discussing the intense debate. inflation which may force the Fed to intervene by tightening monetary policy.
The comments disagree with Yellen’s previous views, shared by other officials in the Biden administration and the Fed, that inflationary pressures in the U.S. would be temporary. It also appeared to have entered the realm of monetary policy, with Treasury secretaries usually leaving the Fed.
In a speech to the board of directors of The Wall Street Journal on Tuesday evening, Yellen clarified his remarks that higher rates are “things I don’t anticipate or recommend” and that he didn’t think “there would be inflation problems.”
“If anyone appreciates the independence of the Fed. I think that’s the person I am,” Yellen added.
Yellen’s initial comments added to additional pressure on shares of high-growth companies, with rates that appear to be relatively lower at higher earnings and fell sharply early in Tuesday’s trading session. The heavy Nasdaq Composite technology ended the day with 1.9%, down 0.7 percent from the benchmark S&P 500.
Market interest rates, however, changed little, with a 10-year Treasury yield of 1.59 percent.
The Fed is still far from raising interest rates, believing that the U.S. economy should get full employment, inflation would be 2 percent, and that time will be on track to moderately exceed that level before the first upward movement.
Higher interest rates would eventually be a reflection of the success the Biden administration has had in fueling the U.S. recovery. But some investors fear that the Fed will be forced to act earlier and more aggressively if inflation rises uncontrollably and inflation expectations are not met.
Yellen said the Fed had the “tools” to effectively control inflation if needed and stressed that Biden’s investment plans, if approved, would be spread over several years and would not add to the U.S. deficit negatively.
“These investments will gradually come in over time. The proposals we have are for eight- to 10-year-olds, and the more modest increases in spending and tax increases are largely due to pay for them, ”Yellen said at the WSJ event.
He added that he “completely disagrees” with former U.S. Treasury Secretary Larry Summers, and warned that the $ 1.9 billion stimulus plan is excessive and too dangerous from an inflationary perspective.
In both appearances, Yellen said Biden’s spending plans will address the structural deficiencies that have caused the disease. US economy for a long time.
Biden’s $ 4 million plan would fund investments in infrastructure, childcare, manufacturing aid and green energy to address issues ranging from climate change to income and racial inequality. Yellen said these investments have been “really short-lived or discarded” for too long.
Asked about his interactions with Fed Chairman Jay Powell since he became secretary of the Treasury, Yellen said they meet approximately “weekly” when the two are available.
“We have a lot of issues that we’re talking about, but it’s up to the Federal Reserve to figure out how they handle monetary policy. It’s something I’m not going to give an opinion on.”
Earlier in the day, White House press secretary Jen Psaki said Biden “certainly agrees with his Secretary of the Treasury” and that inflation concerns were well seen in both the White House and the Treasury.
“Guk. . . take the risk of inflation extremely seriously, and our economic experts have stated that this would be temporary and that the benefits are more than a concern, ”Psaki said. [Yellen] it was about answering a question and conveying how we balance decisions here. “
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