May 12, 2021

Yellen Says Rates Might Need to Rise as Economy Recovers

“I think that our economy will grow faster because of them,” Ms. Yellen said of the proposed investments, such as research and development spending.

The Biden administration has proposed spending approximately $4 trillion over a decade and would pay for the plan with tax increases on companies and the rich.

Ms. Yellen’s comments drew some criticism on Tuesday among those who believed she was overstepping her bounds by weighing in on monetary policy.

“Treasury secretaries shouldn’t talk about the Fed’s policy rate, and Fed governors shouldn’t talk about U.S. dollar policy,” Tony Fratto, a former official at Treasury and the White House during the Bush administration, said on Twitter.

Francesco Bianchi, a Duke University economist who co-authored a 2019 research paper about the impact of former President Donald J. Trump’s tweets on perceptions of the Fed’s independence, called Ms. Yellen’s comments “unfortunate to the extent that the Fed is trying very hard to convince markets that interest rates will remain low.” However, he did not believe Ms. Yellen’s remarks were actually inappropriate.

“It is not clear that the comment qualifies as central bank interference because Secretary Yellen was describing what she thinks would happen as the economy recovers and the Biden administration implements its policies,” Mr. Bianchi said in an email. “In other words, she did not ‘recommend’ that the Federal Reserve follows a particular policy prescription, but she seemed to reflect on how generally interest rates behave as the economy improves.”

Asked about Ms. Yellen’s comments, Jen Psaki, White House press secretary, said the Treasury secretary was not trying to tell the Fed what to do or impeding on the central bank’s independence with her comment on interest rates.

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