With the threat of inflation on the horizon, Treasury Secretary Janet Yellen said interest rates can rise to combat the potential risk.
It may be that the interest rates will have to increase in order to make sure that our economy does not overheat, even though the additional expenditures are relatively small relative to the size of the economy, said Yellen at a virtual event hosted by The Atlantic. It could cause some very modest increases in rates of interest to get that reallocation, but these are investments our economy needs to be productive and to be competitive, and I think that our economy will grow faster because of them.
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Yellen was formerly head of the Federal Reserve under former Presidents Barack Obama and Donald Trump. In this role she was responsible for directing the direction of interest rates, and before the pandemic-induced recession was overseen by the Federal Reserve.
When COVID -- 19 was hit, the Federal Reserve quickly plunged to zero in an attempt to stimulate the economy. When the economy recovers, Yellen said interest rate hikes could be necessary to prevent overheating.
However, when asked to mention her comments later, Yellen downplayed inflation concerns and said she was not suggesting that the Fed raise interest rates.
If anybody who appreciates the independence of Fed, I think that person is me, said Yellen. I don't think there is going to be an inflationary problem. If so, the Fed will be counted on to resolve them.
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Even the slowest recovering sector of the economy, labor market, could be fully recovered as early as next year, Yellen previously stated.
The U.S. Bureau of Labor Statistics released their Friday display showing the economic growth in May with 559,000 jobs. And while President Joe Biden voiced his optimism over the report, economists were.
In May, the government reported that the unemployment rate declined by 0.3 percentage points to 5.8%. Earlier this week, a report based on the market showed that the market could add close to 1 million jobs in May. However, despite the disappointing numbers released in the month, Yellen says the labor markets will make a full recovery shortly.
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Yellen said previously that she expects the labor market to completely recover by 2022 thanks to the administration's political maneuvers passed by Biden.
In March, we expect the Yellen to fuel a very strong economic recovery with resources in the bill. If all goes well, I predict that next year our economy will be back to full employment — where we were before the pandemic —.
With the economic recovery at full swing and a complete recovery expected as soon as 2022, concerns have begun to rise that the economy is too hot. If inflation becomes a problem, the Federal Reserve could increase the interest rate to fight an overheated economy.
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