Yellen Clarifies Inflation Remark, Sees No Need for Fed to Hike

Treasury Secretary Janet Yellen said Tuesday afternoon she wasn’t forecasting interest-rate increases to rein in any inflation spurred by President Joe Biden’s proposed spending, clarifying comments that ruffled financial markets a few hours earlier.

“It’s not something I’m predicting or recommending,” Yellen, a former Federal Reserve chair, said during an online event hosted by the Wall Street Journal. “If anyone appreciates the independence of the Federal Reserve, I think that person is me.”

Yellen said she didn’t anticipate a bout of persistently higher inflation, but that if one occurred the central bank has the tools to deal with it. The Biden administration has proposed additional long-term spending packages totaling about $4 trillion on top of the $1.9 trillion it pumped into the economy beginning in March to combat the impact of the Covid-19 pandemic.

Earlier in the day, Yellen caused a set of hiccups in financial markets when she said that “it may be that interest rates will have to rise somewhat to make sure our economy doesn’t overheat.”

“It could cause some very modest increases in interest rates,” Yellen said in an interview with the Atlantic recorded Monday that was broadcast on the web on Tuesday morning.

That was a rare remark on the outlook for interest rates by a cabinet member, who in recent history -- aside from the very notable exception of former President Donald Trump and his administration -- tended not to veer anywhere close to the Fed’s jurisdiction.

Stocks, which had already been down for the session, slid further after Yellen’s morning remarks, though later pared losses. The S&P 500 ended the day down 0.7%.