Janet Yellen, the economist picked by Joe Biden to run the US Treasury, has said America needs to “act big” to revive its flagging economy and protect itself against long-term scarring with a major stimulus package.
The former chairman of the US central bank, the Federal Reserve, underlined the new administration’s determination to press ahead with plans to boost government spending when she told a Senate committee that the benefits of action by Washington outweighed the costs.
In prepared remarks that led to an early rise in share prices on Wall Street, Yellen said: “Economists don’t always agree, but I think there is a consensus now: without further action, we risk a longer, more painful recession now – and long-term scarring of the economy later.”
Biden published details last week of a plan involving payments to workers, higher unemployment benefits and extra cash to speed up America’s vaccination programme, but despite taking control of both houses of Congress and the White House the president elect will still have a struggle to get his package through in full.
Yellen stepped up the pressure for Republicans on Capitol Hill to support Biden’s initiative at a time when the economy’s recovery has slowed due to restrictions imposed to slow the spread of Covid-19.
“Over the next few months, we are going to need more aid to distribute the vaccine; to reopen schools; to help states keep firefighters and teachers on the job,” she said. “We’ll need more funding to make sure unemployment insurance checks still go out; and to help families who are at risk of going hungry or losing the roof over their heads.”
Yellen sought to counter expected criticisms from Republicans that the $1.9tn (£1.4bn) plan was unaffordable given that its budget deficit is already running at 15% of gross domestic product and its national debt is close to 100% of GDP.
“Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big. In the long run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time.”