Yellen: Biden's phased-in spending plan won't fuel inflation

Treasury Secretary Janet Yellen says President Joe Biden’s massive proposed spending on infrastructure, families and education won’t fuel inflation because the plans would be phased in gradually over 10 years

Some economists, notably former Treasury Secretary Larry Summers, have warned that the Federal Reserve’s current ultra-low interest rates, along with the Biden administration’s proposed $4 trillion in new spending, atop about $5 trillion already approved by Congress, risk accelerating inflation.

Addressing fears about inflation, Yellen said on NBC's “Meet the Press” that the proposed spending “comes into effect once the economy is back on track.”

“It’s spread out quite evenly over eight to 10 years. So the boost to demand is moderate,” she said. “I don’t believe that inflation will be an issue, but if it becomes an issue, we have tools to address it.”

Yellen, a former Fed chair, said the central bank “has the tools to redress inflation should it arise."

Fed Chairman Jay Powell has clearly indicated that he does not believe a sharp surge in prices is likely. Powell is betting that the Fed can keep interest rates low even as the economic recovery intensifies, and will not have to quickly raise rates to stop runaway inflation.

Yellen called the Biden plans “historic investments that we need to make our economy productive and fair.”

She noted that the administration is proposing that the spending be paid for by raising the tax rate on corporations above the current level of 21% and closing loopholes to encourage U.S. corporations to shift their income abroad to tax havens. People earning more than a million dollars annually would see a tax increase on their capital gains and dividends to 39.6%, the same rate as income for families making over $400,000 a year before the 2017 Trump tax law.

The administration is pledging that under its plan, no family earning less than $400,000 would pay a penny more in taxes.

Like the spending plans, the tax changes must be enacted by Congress, and the White House’s negotiations with Republican lawmakers, and some Democrats, who staunchly oppose tax increases promise to be strenuous.

“Anybody that says this is going to be just on the 1 percent or big corporations -- I mean, that’s just phony math,” Sen. John Barrasso, R-Wyo., said on ABC's “This Week.”