Treasury Secretary Janet Yellen said President Joe Biden should push forward with his $4 trillion spending plans even if they generate inflation that forces the Fed to hike interest rates.
“If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view,” Yellen said Sunday in an interview with Bloomberg News.
Several prominent economists have warned that the spending proposals by Biden risk pushing inflation up to undesirable levels, which could force the Fed to raise rates faster than currently expected.
The Fed says that it wants inflation to average two percent over the long term. To achieve that, following years of low inflation, Fed officials say they will let inflation run higher than the target for some time. Fed chair Jerome Powell has said he expects a period of high inflation this summer will prove to be “transitory.”
“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” Yellen said.
The Consumer Price Index jumped 0.8 percent in April, an enormous monthly bout of inflation. The Department of Labor will release May’s CPI on Thursday. Economists expect inflation to slow down to 0.4 percent.