Yellen says spending May spur ‘modest’ rate hikes

US Treasury Secretary Janet Yellen said interest rates may have to rise modestly to prevent the US economy from overheating due to higher levels of government spending, without specifying a timeframe. “It may be that interest rates will have to rise somewhat to make sure our economy doesn’t overheat,” Yellen said in an interview with the Atlantic recorded Monday that was broadcast on the web on Tuesday. “It could cause some very modest increases in interest rates.”

Stocks briefly extended their losses on Tuesday and the dollar touched session highs following Yellen’s remarks. The yield on 10-year Treasuries pared declines.

Yellen insisted that the heavy spending President Joe Biden is calling for would provide a net benefit to the economy, even if interest rates do go up. “These are investments our economy needs to be competitive and to be productive, and I think our economy will grow faster because of them,” Yellen said.