US Treasury Secretary Janet Yellen warned on Tuesday that interest rates may need to be raised in order to prevent the US economy from overheating, a remark that exacerbated the sell-off of technology stocks.
She said at an event hosted by The Atlantic: “Perhaps interest rates must be increased to ensure that our economy does not overheat, although the additional expenditure is relatively small relative to the size of the economy.”
“Therefore, this may result in a very modest increase in interest rates to be redistributed. But this is an investment in which our economy must be competitive and productive.”
Investors and economists have been arguing whether the trillions of dollars in additional federal spending, coupled with the rapid introduction of vaccines, will cause panic among people. inflation. At the time of the debate, stimulus checks issued to consumers contributed to a market rebound and the stock market rose to record levels.
Federal Reserve Chairman Jay Powell said he believes that inflation will only be “temporary.” The central bank has promised to firmly adhere to the ultra-loose monetary policy until substantial progress is made in the economic recovery.
Since Joe Biden won the president of the United States, even if the market continues to rise, the possibility of raising interest rates has become a risk raised by many investors.
Yellen’s comments put additional pressure on the stocks of high-growth companies, which have relatively low future earnings value when interest rates rise, and have already fallen sharply during the trading hours on Tuesday. At midday in the New York market, the high-tech Nasdaq Composite Index fell 2.8%, while the S&P 500 Index fell 1.4%.
After the speech, market interest rates did not change much, and the 10-year US Treasury bond yield was 1.59%. Yellen has recently insisted that the US economic stimulus package and the government’s large-scale investment plan for the economy are unlikely to trigger an unhealthy increase in inflation. The US Treasury Secretary also expressed his belief that if the inflation rate continues to rise beyond expectations, the Fed will have the “tools” to deal with it.
The Secretary of the Treasury usually does not oppose specific monetary policy actions, which is the Fed’s purview. The chairman of the Federal Reserve usually refuses to comment on the U.S. policy towards the dollar, which is considered the prerogative of the Treasury Secretary.
Yellen’s comments on the Atlantic Incident on Monday were recorded, and she took this opportunity to prove that Biden’s spending plan would solve the structural flaws that have long plagued the US economy.
Biden plans to inject more government investment into infrastructure, childcare spending, manufacturing subsidies and green energy to address a range of issues from climate change to income and ethnic differences.
She said: “We have gone too long, letting long-term problems worsen in our economy.”