What had lately emerged as a growing concern for U.S. and world markets materialized this weekend, when Janet Yellen and Warren Buffett exchanged views on possible rises in inflation.
Berkshire President and CEO Hathaway warned that there are already signs of a peak in that line, something the Treasury secretary rejected. But as the days go by, the economist seems to have agreed to the “oracle.”
Indeed, the former Fed chairman acknowledged that interest rates may need to rise to prevent the U.S. economy from overheating as a result of advancing President Joe Biden’s ambitious investment plans.
“Interest rates may have to raise somewhat to ensure that our economy doesn’t overheat,” he raised authority during a seminar hosted by The Atlantic magazine, recorded Monday, but published Tuesday.
In the view of the head of the Treasury, “although the additional spending is relatively small relative to the size of the economy, it could cause some very modest increases in interest rates to achieve such reallocation.”
But despite this, he strongly argued that “these are investments that our economy needs to be competitive and productive,” adding that “I think our economy will grow faster thanks to them.”
In the afternoon, Yellen softened his comments and argued that he respects the independence of the central bank. “It’s not something I’m predicting or recommending,” he said at a Wall Street Journal event, arguing that “if anyone appreciates the Fed’s independence, I think that person is me, and I note that the Fed can be counted on to do whatever it takes to achieve their dual-mandate goals.”
The statements come days after Biden filed his “American Family Plan,” which will allocate $1.8 trillion (million) to social security, adding to the $2.2 trillion the Democrat aims to invest in infrastructure over the next decade. All this, in addition to several rounds of stimulus already delivered.
These programs, according to Yellen, will make a “big difference” in inequality, adding that “we have spent too much time letting long-term problems get worse in our economy.”
Fiscal and monetary authorities have argued that they are not concerned about accelerating inflation, arguing that price increases this year will be mostly transitory, but that if this becomes a problem, the Fed has the tools to monitor and address any persistent effects.
Central bank president Jerome Powell has insisted that inflation will be transitory, and has argued that the main tool for controlling it is the highest interest rates.
In the afternoon, White House press secretary Jen Psaki backed Yellen by saying that the president agrees with his approaches, and stated that “we take inflationary risk incredibly seriously.”