US Treasury Secretary Janet Yellen said on Tuesday she sees no inflation problem brewing, downplaying earlier comments that rate hikes may be needed to stop the economy overheating as President Joe Biden's spending plans boost growth.
The initial comments made by Yellen, a former Federal Reserve chair, deepened a sell-off in tech stocks and pushed longer-dated Treasury yields higher.
"It may be that interest rates will have to rise somewhat to make sure that our economy doesn't overheat, even though the additional spending is relatively small relative to the size of the economy," Yellen said in taped remarks to a virtual event put on by The Atlantic.
"It could cause some very modest increases in interest rates to get that reallocation, but these are investments our economy needs to be competitive and to be productive (and) I think that our economy will grow faster because of them."
Later on Tuesday, Yellen told a Wall Street Journal CEO Council event that she does not anticipate that inflation would be a problem for the US economy and that any price increases would be transitory because of supply chain shortages and the rebound in oil prices to pre-pandemic levels.
Asked directly about her remarks on rates, Yellen said she was neither predicting nor recommending a rate rise.
"If anybody appreciates the independence of the Fed, I think that person is me," Yellen said. "I don't think there's going to be an inflationary problem. But if there is the Fed will be counted on to address them," she added.
Treasury bond yields have risen sharply this year, especially in the first quarter, on growing expectations for an economic recovery from the coronavirus recession.