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Treasury Secretary Janet Yellen asserted Friday that the administration’s infrastructure spending proposal will lower inflation by reducing costs vital to households.
Speaking to CNBC from Rome where she is attending the G-20 conference of global leaders, Yellen renewed her push for White House spending plans that are unpopular with several factions of Congress and have yet to be approved.
“I don’t think that these investments will drive up inflation at all,” she told CNBC’s Sara Eisen during a live “Worldwide Exchange” interview.
The $1 trillion infrastructure and companion $1.8 trillion climate and social spending spending plans have been pared back considerably during negotiations with Congress. At their core is an effort to improve the nation’s infrastructure, over which the Biden administration has cast a wide umbrella of not only the traditional investments in roads and bridges, but also across a wide swath of social programs like early child care.
Additional spending has drawn fears of inflation at a time when prices are rising close to their fastest pace in 30 years, but Yellen said the package will not exacerbate the pressures.
“It will boost the economy’s potential to grow, the economy’s supply potential, which tends to push inflation down, not up,” she said. “For many American families experiencing inflation, seeing the prices of gas and other things that they buy rise, what this package will do is lower some of the most important costs, what they pay for health care, for child care. It’s anti-inflationary in that sense as well.”
Yellen’s remarks come at a tenuous time for the U.S. economy.
Not only has inflation risen, but growth also has decelerated. Due in large part to supply chain issues that have left dozens of ships stranded at U.S. ports, the pace of gross domestic product growth slowed to 2% in the third quarter, the slowest rate since the pandemic-induced recession ended in April 2020.
Part of the administration’s G-20 agenda will be addressing its pet economic concerns, including the implementation of a global minimum for corporate taxes, as well as climate change and the supply chain issues that have hampered growth and threaten to cut into holiday spending patterns. Yellen said she expects the supply chain situation “will be addressed over the medium term.”
She called the White House’s Build Back Better program “transformational” in addressing the economy’s needs as the nation seeks to emerge from the Covid-19 pandemic. She insisted the spending plans are “fully paid for” through tax proposals primarily aimed at higher earners and corporations.
“I think it really helps us invest in physical capital. That’s public infrastructure that’s important to productivity growth,” she said. “There’s investment in human capital, there’s investment in research and development, the support that families will receive that will help them participate in the labor market.”
Yellen added that she’s hopeful economic growth will accelerate and inflation will recede.
Economic officials, including Federal Reserve Chairman Jerome Powell, have become less willing to use the word “transitory” to describe inflation as price pressures already have lasted longer than anticipated.
Yellen said she still expects inflation to ebb over time and return to its longer-run average around 2%, which is the Fed’s goal.
“I think it’s still fair to use [‘transitory’] in the sense that even if it doesn’t mean a month or two, it means a little bit longer than that. I think it conveys that the pressures that we’re seeing are related to a unique shock to the economy,” she said. “As the United States recovers and as vaccinations proceed globally, and the global economic activity revives, that pricing pressure will ease.”