Economy, Americas

Yellen supports rise in US interest rates, then concedes

Treasury head later says she respects Federal Reserve’s independence

Ovunc Kutlu   | 05.05.2021
Yellen supports rise in US interest rates, then concedes


US Treasury Secretary Janet Yellen on Tuesday supported an increase in interest rates, causing panic and plummet in markets, but then conceded her stance.

"It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat," Yellen said during an economic forum presented by American magazine The Atlantic.

"Even though the additional spending is relatively small relative to the size of the economy, it could cause some very modest increases in interest rates," she added.

Yellen's comments were perceived against the Federal Reserve's stance that has numerously indicated that the interest rates will remain near zero until American economy reaches maximum employment and fully recovers from the coronavirus pandemic.

After her statement, US stock market plummeted with worries that the central bank would raise rates sometime next year, instead of 2023. While the S&P 500 finished the day with a 0.6% loss, the Nasdaq was down 1.9%.

Yellen, who led FED from 2014 to 2018, later conceded her stance and said she respects the Federal Reserve’s independence.

"It’s not something I’m predicting or recommending," Yellen told the Wall Street Journal’s CEO Council Summit, adding "I note that the Fed can be counted on to do whatever is necessary to achieve their dual mandate objectives."

The Fed's low interest rates mandate aims to increase consumer spending to revive the world's largest economy, but this may also cause overheating that could lead to unsustainable growth and high levels of inflation.

US economy expanded 6.4% in the first quarter of 2021, while some analysts estimate over a 10% growth for the second quarter.

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