US Secretary of the Treasury Janet Yellen on Sunday said that US President Joe Biden’s US$4 trillion spending plan would be good for the US, even if it contributes to rising inflation and results in higher 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 in an interview with Bloomberg News during her return from the G7 finance ministers’ meeting in London.
The debate around inflation has intensified in recent months, between those like Yellen who argue that current price increases are being driven by transitory anomalies created by the COVID-19 pandemic — such as supply-chain bottlenecks and a surge in spending as economies reopen — and critics who say trillions in government aid could fuel a lasting spike in costs.
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Biden’s packages would add up to about US$400 billion in spending per year, she said, adding that it is not enough to cause an inflation overrun.
Any “spurt” in prices resulting from the rescue package would fade away next year, she said.
“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” the former US Federal Reserve chair said, adding that “we want them to go back to” a normal interest rate environment, “and if this helps a little bit to alleviate things then that’s not a bad thing — that’s a good thing.”
The headline measure of consumer prices rose 4.2 percent in the 12 months through April, and the numbers for last month are due to be published on Thursday.
The Fed has committed to only start scaling back the US$120 billion monthly pace of its asset purchases after there is “substantial further progress” on inflation and employment.
US job growth picked up last month — along with workers’ pay — and the unemployment rate fell to 5.8 percent, a US Department of Labor report on Friday showed.
Asian stock markets were mixed yesterday as investors mulled comments by Yellen on interest rates and weighed the impact of the G7 global tax plan on tech giants.
Hong Kong was down 0.7 percent, Sydney was off 0.2 percent and Taipei slipped 0.4 percent.
Tokyo trimmed earlier gains, but still closed up 0.3 percent, Seoul added 0.4 percent and Singapore was 0.7 percent higher, while Shanghai recovered from an early dip to end 0.2 percent higher.
Additional reporting by AFP
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