In an address to Congress on Thursday, Federal Reserve Board Chair Janet Yellen questioned key sections of President-elect Donald Trump’s economic plan. Yellen warned that Trump’s plan could drive up inflation, swell the national debt, and leave the American economy more vulnerable to economic downturns.
Trump has proposed increasing spending on infrastructure as a means to increase employment. But Yellen, testifying before the Joint Economic Committee, suggested that America’s economy doesn’t need a large influx of cash and jobs now.
“The economy is operating relatively close to full employment at this point, so in contrast to where the economy was after the financial crisis when a large demand boost was needed to lower unemployment, we’re no longer in that state.”
Spending on infrastructure would boost inflation and reduce the government’s ability to deploy a financial stimulus if another economic crash like the Great Recession occurs.
Trump’s other economic policies will make that unhappy outcome more likely. Trump has suggested that he will eliminate up to 70 percent of federal regulations, including financial regulations like the Dodd-Frank reforms designed to protect the public from abuse by big financial institutions. Yellen addressed the importance of keeping Dodd-Frank in place during her testimony:
“We lived through a devastating financial crisis, and a high priority for all Americans should be that we want to see put in place safeguards through supervision and regulation that result in a safer and sounder financial system, and I think we have been doing that, and our financial system as a consequence is safer and sounder and many of the appropriate reforms are embodied in Dodd-Frank.”
Trump criticized Yellen harshly during his presidential campaign, accusing her of politicizing the Fed for the benefit of President Obama and Trump’s Democratic rival Hillary Clinton.
Yellen suggested that instead of a major spending project, the government should instead focus on developing long-term productivity and growth.
Watch Yellen talk about Federal Reserve independence in light of a Trump presidency:
Featured image via YouTube video.