Treasury Secretary Janet Yellen on Sunday said there’s a “small” risk of inflation when the nation returns to near full employment — a post-pandemic rebound she predicts will occur by next year.
In an interview on ABC News’ “This Week,” Yellen said she believes any rise in inflation will be “manageable.”
“Is there a risk of inflation? I think there's a small risk,” she said. “And I think it's manageable. Prices fell a lot last spring, when the pandemic surged. I expect some of those prices to move up again, as the economy recovers [in] the spring and summer. But that's a temporary movement in prices.”
According to Yellen, to get a sustained high inflation akin to the situation in the 1970s, “I absolutely don't expect that.”
“We have had very well-anchored inflation expectations and a Federal Reserve that's learned about how to manage inflation,” she asserted. “So, I don't think it's a significant risk. And if it materializes, we will certainly monitor for it. But we have tools to address it.”
Pressed on a massive federal debt figure that is raising concerns it’ll exceed the Gross Domestic Product for the first time since World War II, Yellen cited a global trend toward “very low interest rates.”
“It reflects structural trends that are not going to disappear soon,” she said of the low rates around the globe.
“When I think about the burden of debt, I think about it mainly in terms of the interest payments that the government needs to pay … on that debt,” she said. “And in spite of the fact that the debt has increased substantially, interest payments relative to the size of the economy have remained quite low. No higher than they were back in 2007.”
She continued, however, “we have to make sure that the economy, that the budget is on a sustainable path, and this is something that we can afford.”
“In the longer run, we need to get deficits under control to make sure that our fiscal situation is sustainable,” she declared.
Yellen’s attitude about the federal debt reflects a steady shift in economists' thinking about the mountains of government debt across the developed world that has been underway for a decade and has roots in the near collapse of the euro zone.
At her Senate confirmation hearing, Yellen, a former Federal Reserve chair, said focus now should be on the interest rate being paid and the returns it will generate, an approach that argues the country's future economic potential can support more borrowing today and makes the roughly $26.9 trillion in U.S. IOUs seem less formidable.
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