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Capitol Report: Yellen says interest rates may have to rise ‘somewhat’ to keep economy from overheating

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Treasury Secretary Janet Yellen said interest rates may have to increase somewhat in order to keep the U.S. economy from overheating.

In an interview with the Atlantic that was recorded Monday and aired Tuesday, the Treasury chief said, “It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy.”

Yellen was discussing the Biden administration’s $2.3 trillion infrastructure proposal and its $1.8 trillion American Families Plan. She acknowledged that those proposals have “high price tags,” but stressed that they are long-term programs.

Also see: Fed’s Kaplan, in interview, presses for start of discussion on tapping brakes on support for economy

If approved by Congress, those plans would come on top of the $1.9 trillion COVID relief bill President Joe Biden signed in March.

On Monday, Senate Republican Leader Mitch McConnell said Democrats should expect “zero” support from his party for Biden’s new big-ticket infrastructure and social spending proposals. Biden’s party faces a variety of choices on how to proceed, including whether to use a process called budget reconciliation, which would allow Democrats to pass a bill without GOP votes in the Senate.

Now read: McConnell predicts ‘zero’ Republican support for Biden jobs and families plan

On Sunday, Yellen said that Biden’s proposed spending on infrastructure and families would not fuel inflation, because the plans would be phased in gradually over 10 years.

See: Yellen says Biden’s gradual spending plan won’t fuel inflation

Last week, the Federal Reserve after its latest meeting stuck to its strategy of helping the U.S. economy with ultra-low interest rates even as it saw broad signs of faster growth. The central bank held a key short-term interest rate near zero and maintained monthly purchases of $120 billion in Treasury and mortgage-backed bonds.

Chairman Jerome Powell said the Fed would stay the course until the economy strengthened even further and coronavirus cases fell sharply.

Also read: Fed sticks to easy-money strategy even as it sees a strengthening U.S. economy

U.S. stocks
DJIA,
-0.29%

SPX,
-1.06%

COMP,
-2.31%

deepened their losses in the wake of the interest-rate comments by Yellen, a former head of the Federal Reserve.

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