Treasury Secretary Janet Yellen acknowledged on Tuesday that interest rates may have to rise to keep a cover for the booming growth of the US economy partly caused by trillions of dollars in government stimulus, to help contain rising inflation.
“Maybe interest rates should go up to make sure our economy doesn’t overheat. Although the additional spending is relatively small in relation to the size of the economy, it could cause some very modest increases in interest rates,” Yellen said during an economic forum presented by The Atlantic.
“This is not something I expect or recommend. If anyone appreciates the independence of the Fed, I think that person is me, and I note that the Federal Reserve can be counted on to do whatever is necessary to achieve its dual mandate goals,” Yellen told the CEO Summit in The Wall Street Journal.
Goldman Sachs recently said it expects second-quarter growth of around 10.5%, after the US economy was already on fire with first-quarter GDP growth of 6.4%.
Since the outbreak of the pandemic, Congress has appropriated about $5.3 trillion in stimulus spending, resulting in a budget deficit of more than $3 trillion in the 2020 fiscal year and a $ 1.7 trillion shortfall in the first half of the 2021 fiscal year.
“I’m not too concerned about inflation becoming a problem. There are tools to address it if it does,” she pointed out. Also, Fed Chairman Jerome Powell recently said that the primary tool to control inflation is to raise interest rates.
On concerns about the large US deficit, Yellen said, “We need to pay for some of the things that we do” even though the government still has “a reasonable amount of fiscal space.”