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Yellen Says U.S. Inflation Risk Remains Small, ‘Manageable’

By TaxWealth -

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.”

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