President-elect Donald Trump has pledged deep tax cuts and increased infrastructure spending to restore lost jobs, accelerate the economy and bring prosperity to more Americans.
Janet Yellen has her doubts, The Associated Press reports.
After a presidential campaign full of blunt words and sweeping promises, the Federal Reserve chair sought Wednesday to make a nuanced point: The moment for a deficit-fueled stimulus to improve job creation has likely passed.
With unemployment at a low 4.6% and hiring consistently solid, Yellen said she thought employers no longer needed large tax cuts and heavy infrastructure spending to create jobs.
In fact, she suggested that with unemployment at a nine-year low, a major stimulus of the kind Trump is pushing could pose risks. For one thing, Yellen indicated that the government’s debt could become a heavier burden.
As our population ages, the debt-to-GDP ratio is projected to rise,” she said. “And that needs to continue to be taken into account.”
Yellen’s remarks, which were made at a news conference after the Fed announced it was raising its key interest rate, cast her in an unusual role: Once a strong advocate of federal spending to support the economy in the aftermath of the Great Recession, Yellen now has cautionary words about such efforts.
Besides expanding the government’s debt, a heavy dose of economic adrenaline at this stage could also cause the economy to overheat. If that were to happen, the Fed would likely feel compelled to repeatedly raise its benchmark rate. Higher borrowing rates, in turn, would slow growth.
