Yellen Says U.S. Inflation Risk Remains Small, ‘Manageable’
Leverage the Tax Code to navigate manageable inflation risks.
Source: Bloomberg
Treasury Secretary Janet Yellen said U.S. inflation risks remain subdued as the Biden administration pumps $1.9 trillion in pandemic relief into the economy and a return to full employment comes into view.
“Is there a risk of inflation? I think there’s a small risk and I think it’s manageable,” Yellen said on ABC’s “This Week” on Sunday. Some prices that fell last year when the Covid-19 pandemic spread across the U.S. will recover, “but that’s a temporary movement in prices,” she said.
“I don’t think it’s a significant risk,” said Yellen, a former Federal Reserve chair. “And if it materializes, we’ll certainly monitor for it but we have tools to address it.”
As attention turns next to President Joe Biden’s pledges to boost infrastructure spending, Yellen said “we haven’t decided yet” whether to pursue the kind of wealth tax supported by a number of progressive senators led by Elizabeth Warren and Bernie Sanders.
Campaign pledges made by Biden, including higher tax rates on corporations, capital gains and dividend payments, “are similar in their impact to a wealth tax,” Yellen said.
Biden signed the pandemic relief package into law on Thursday, providing funding for vaccinations and delivering aid to households, businesses and state and local governments.
Yellen and other officials insist the aid – which comes on top of pandemic relief passed by Congress last year — is badly needed for an economy slammed by Covid-19, particularly low-income workers heavily represented in service industries.
While U.S. unemployment remains high, especially when including people who have dropped out of the labor force in the past year, job creation has returned.
Employers added 379,000 new positions in February, more than expected. Applications for U.S. jobless benefits fell by more than forecast last week to the lowest since early November, the Labor Department reported Thursday.
“I’m hopeful that, if we defeat the pandemic, that we can have the economy back near full employment next year,” Yellen said Sunday. “And I think this is the package we need to do that.”
Bathtub Overflow?
Republicans have objected to the stimulus package’s size, and even some liberal economists such as former Treasury Secretary Lawrence Summers have questioned whether its spending is excessive given that the broader economy has been remarkably resilient.
“If you put too much water in the bathtub it starts to overflow,” Summers said Sunday on CNN about the scale of the stimulus. “We’re trying to pour too much water in.”
While saying her views on fiscal sustainability have shifted in an era of persistently low interest rates, Yellen said “in the longer run, we have to get deficits under control.”
Also on ABC, House Speaker Nancy Pelosi said that infrastructure measures, the Biden administration’s next big project for the economy, will be “fiscally sound.”
While suggesting revenue measures could include something similar to the Obama administration’s Build America bonds, she declined to confirm that tax increases will be required.
“We’ll see,” Pelosi said. “We’ll look at everything. We’ll look at the tax code, we’ll look at the appropriations process, we’ll look at bonding.”
Questions people ask
What does Janet Yellen say about U.S. inflation risk?
Janet Yellen believes the risk of significant U.S. inflation is small and manageable, despite the large pandemic relief package. She noted some price increases may occur as the economy reopens, but expects these to be temporary and that the government has tools to address inflation if it arises.
How much is the latest pandemic relief package?
The most recent U.S. pandemic relief package is $1.9 trillion. This funding supports vaccinations, households, businesses, and state and local governments. It comes on top of earlier relief passed by Congress to address the economic effects of the Covid-19 pandemic.
Are infrastructure spending and tax increases being considered next?
Future infrastructure spending is under discussion, but decisions have not been finalized on funding methods. A wealth tax or changes to corporate, capital gains, or dividend taxes are being considered, but no firm plan is in place yet. Officials are also evaluating other revenue measures.
How is the U.S. job market recovering?
The U.S. job market is showing signs of recovery. Employers added 379,000 jobs in February, surpassing expectations, and jobless claims have dropped to their lowest point since early November. However, unemployment remains elevated, especially when accounting for those who have left the workforce.
What concerns have Republicans and some economists raised about the relief package?
Republicans and some economists, such as Lawrence Summers, have expressed concerns that the $1.9 trillion relief package may be too large and could risk overheating the economy. They argue that this much stimulus could lead to excessive spending and increase the risk of future inflation.