Treasury Secretary Janet L. Yellen said higher interest rates might be needed to keep the economy from overheating given the large investments that the Biden administration is proposing to rebuild the nation’s infrastructure and remake its labor force.
The comments, shown on Tuesday at an event sponsored by The Atlantic, come amid heightened concern from some economists and businesses that the United States is in for a period of higher inflation as stimulus money flows through the economy and consumers begin spending again. The Treasury secretary has no role in setting interest rate policies.
Jerome H. Powell, the Federal Reserve chair, said last month that the central bank is unlikely to raise interest rates this year and wants to see further healing in the American economy before officials will consider pulling back their support by slowing government-backed bond purchases and lifting interest rates.
While the Fed is watching for signs of inflation, Mr. Powell and other Fed officials have said they believe any price spikes will be temporary and will not be sustained. On Monday, John C. Williams, president of the Federal Reserve Bank of New York, said that while the economy is recovering, “The data and conditions we are seeing now are not nearly enough” for the Fed’s policy-setting committee “to shift its monetary policy stance.”
Ms. Yellen, who preceded Mr. Powell as Fed chair, did not predict a huge spike in interest rates but said that some “modest” increases might be necessary as the economy recovers and the administration tries to push through infrastructure and other investments aimed at making the United States more competitive and productive.
“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,” Ms. Yellen said when asked if the economy could handle the kind of robust spending that the Biden administration is proposing.
“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 investments with tax increases on companies and the rich.