In a Bloomberg interview, Treasury Secretary Janet Yellen said President Joe Biden should push forward with his $4 trillion spending plans even if they trigger inflation that persists into next year and higher interest rates.
The comments follow Friday’s slightly softer-than-expected US May employment numbers which combined with such rhetoric stand to set the tone for the weeks ahead.
Looking forward, the June 16 Federal Open Market Committee meeting will be under the spotlight where the Fed would be expected to say that substantial progress towards its goals has not been achieved.
The speculation in markets that the tapering debate will be deferred a little longer has pressured the greenback
Before the Fed, however, this week sees the May US Consumer Price Index release and following last months reaction in FX and rates markets that looked through the jump in inflation, the same may be true this month.
“If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view,” Yellen said Sunday in an interview with Bloomberg News during her return from the Group of Seven finance ministers’ meeting in London.
”Biden’s packages would add up to roughly $400 billion in spending per year, Yellen said, contending that’s not enough to cause an inflation over-run. Any’spurt’ in prices resulting from the rescue package will fade away next year, she added,” Bloomberg wrote.
“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade…we want them to go back to” a normal interest rate environment, “and if this helps a little bit to alleviate things then that’s not a bad thing, that’s a good thing.”
Overall, the combination of higher US inflation and a Fed prepared to do little about it is a negative environment for the greenback and Super Thursday with US CPI and the ECB policy decision should be testing.
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