The tax and spending plans of President Donald Trump will not necessarily drive up interest rates, according to Federal Reserve Chair Janet Yellen during Capitol Hill’s second day of hearings on the Fed’s semi-annual report to Congress.
Yellen said that tightening of monetary policy could possible “if we think that it is demand-based and threatens our inflation objective.”
During the hearing, Yellen urged lawmakers to prioritize raising the long-run growth rate of the economy by raising productivity and increasing the supply of labor.
“There are policy measures that Congress and the administration could consider that would boost the capacity of the U.S. economy,” she told the House Financial Services Committee.
Yellen also weighed in on the controversial proposal for a border-adjusted corporate tax that importers would have to pay but exporters wouldn’t. She said there was “great uncertainty” about how the U.S. dollar would react “in reality.”
Proponents argue that the higher tax would be offset by a commensurate rise of the U.S. currency which would lower the cost of the imports for those companies.
“It is very difficult to know what will happen,” she said.