Treasury Secretary Janet Yellen believes that the Biden administration’s spending agenda is worthwhile, despite potential spikes in inflation.
In an interview with Bloomberg News on Sunday, Yellen — who served as Chair of the Federal Reserve from 2014 to 2018 — affirmed that “if we ended up with a slightly higher interest rate environment” as a result of President Biden’s proposed outlays, it would “actually be a plus for society’s point of view and the Fed’s point of view.”
In the first months of his administration, President Biden has proposed trillions of dollars in new spending — including the American Jobs Plan, the American Families Plan, and a $6 trillion federal budget that incorporates both pieces of legislation.
Economists, however, are skeptical about the omnibus packages’ ability to encourage long-term economic growth. For instance, analysis from the University of Pennsylvania’s Wharton School shows that the American Jobs Plan, American Families Plan, and already-passed American Rescue Plan would create government debt that would “crowd out” long-term investment in the private sector.
Yellen, however, told Bloomberg News that the bills are not “meant as stimulus.” Rather, they are “meant as investments to address long-standing needs of our economy.”
“I will not give up on the next packages,” Yellen said.
Yellen — who also carried out key roles in the federal government’s financial apparatus under the Clinton and Obama administrations — is on board with President Biden’s push to address purported systemic injustice through fiscal and monetary policy.
In a January letter to Treasury Department staff, Yellen declared that economics is neither “just something you find in textbook” nor “simply a collection of theories.”
“Indeed, the reason I went from academia to government is because I believe economic policy can be a potent tool to improve society,” she wrote. “We can — and should — use it to address inequality, racism, and climate change.”
As Bloomberg News reported, Yellen sees any potential inflation “spurt” from Biden’s policies as temporary.
“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” remarked Yellen, stating that “we want them to go back to” a normal interest rate environment, “and if this helps a little bit to alleviate things then that’s not a bad thing — that’s a good thing.”
Yellen trusts the Federal Reserve to mitigate any potential rise in inflation: “I know that world — they’re very good. I don’t believe they’re going to screw it up.”
Even though the Fed anticipates a robust economic recovery from the COVID-19 and lockdown-induced recession, the Fed also anticipates keeping the interest rate close to zero through 2023. In the past, however, the Fed has increased the federal funds rate — the short-term rate at which commercial banks can borrow and lend their reserves to one another — to stop markets from overheating during periods of economic expansion.
Inflation is currently at its highest rate since the Great Recession.
The views expressed in this piece are the author’s own and do not necessarily represent those of The Daily Wire.