Prices will rise because of stimulus, but that won’t last, Janet Yellen says

Treasury Secretary Janet Yellen said she didn’t think inflation posed a significant risk now that the Biden administration’s covid relief is signed and on its way to implementation.

Prominent economists including Larry Summers have warned, in part, that the bill could impact financial stability and lead to unprecedented inflationary pressure.

“Policymaking is about identifying and addressing risks, and the most significant risk we face is a workforce that’s scarred by a long period of unemployment,” Yellen said on ABC’s “This Week.”

Yellen added that prices fell substantially last year when the pandemic surged and that she expects to see them move up again as the economy recovers.

“That’s a temporary movement in prices,” she said. “To get a sustained high inflation like we had in the 1970’s, I absolutely don’t expect that. We’ve had a very well anchored inflation expectations, and a Federal Reserve that’s learned about how to manage inflation. So, I don’t think it’s a significant risk and if it materializes, we’ll certainly monitor for it, but we have tools to address it,” she added.

When pushed by ABC’s George Stephanopoulos on the federal debt, Yellen said she’s changed her views “somewhat” about fiscal sustainability in part because of the global trend toward very low interest rates.

“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 those on that debt. And in spite of the fact that the debt is increased substantially, on interest payments relative to this year, to the size of the economy have remained quite low, no higher than they were back in 2007,” she said.

“But, of course, we have to make sure that the economy’s 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.”

On Sen Warren’s call for a wealth tax, Yellen pointed back to the number of proposals that she said Biden has offered that would lead to a similar outcome.