You kind of knew this was going to happen eventually. You\u2019re just probably surprised it happened so fast and so publicly.<\/p>\n
After serving as Federal Reserve chair for four years, until February 2018, and now Treasury Secretary since January, Janet Yellen could probably be forgiven for forgetting what position she holds. After all, in addition to being located in Washington, both the Fed and the Treasury pretty much work hand in hand, with the former directing monetary policy and the latter handling fiscal policy. Under the pretense, they\u2019re both independent of each other.<\/p>\n
But last week, Yellen let the cat out of the bag and ignited a one-day mini taper tantrum in stock prices, which is a little hard to understand, given that she only said<\/a> what everyone else was already thinking. (But as we know, a gaffe is when a politician or government official accidentally tells the truth).<\/p>\n \u201cIt may be that interest rates will have to rise somewhat to make sure that our economy doesn\u2019t overheat, even though the additional spending [proposed and already enacted by the Biden Administration] is relatively small relative to the size of the economy,\u201d she said in a prerecorded interview at the Atlantic\u2019s Future Economy Summit. <\/p>\n Later on, of course, she walked that back a little, telling the Wall Street Journal, \u201cI don\u2019t think there\u2019s going to be an inflationary problem, but if there is, the Fed can be counted on to address it,\u201d she said.<\/p>\n It was certainly much ado about nothing, but it raises an important question, namely: Other than raising interest rates, either directly or indirectly, what exactly can the Fed do to fend off higher inflation?<\/p>\n About a week before Yellen spoke, her successor as Fed chair, Jerome Powell, following the Fed\u2019s April monetary policy meeting, declared, \u201cIf we see inflation moving materially above 2% in a persistent way that risks inflation expectations drifting up, then we will use our tools to guide inflation and expectations back down to 2%. No one should doubt that we will do that,\u201d he said.<\/p>\n Uncover the most undervalued and unappreciated stocks with our free, weekly newsletter. You'll get a new stock analysis every Tuesday!<\/p>\nGet Our Stock of the Week<\/a><\/h5>\n