U.S. Treasury Secretary Yellen: Raising interest rates is good for society and the Federal Reserve, and President Biden's spending plan will not be abandoned even if inflation rises

U.S. Treasury Secretary Janet Yellen said in an interview with Bloomberg that U.S. President Joe Biden should move forward with his $4 trillion spending plans even if they trigger inflation and higher interest rates that last into next year.

"If we end up with slightly higher interest rates, that would actually be good for society and good for the Fed," Yellen said.

In recent months, a debate over inflation has intensified, with those like Yellen arguing that the current price increases are driven by "temporary anomalies" caused by the pandemic, such as supply chain bottlenecks and a surge in spending as the economy reopens, and critics who say trillions of dollars in government aid could lead to a continued surge in costs.

Yellen said Biden’s package would add about $400 billion in spending a year and argued that would not be enough to cause inflation overruns. She said any “spike” in prices due to the rescue plan would fade next year.

"For a decade, we've been fighting too low inflation and too low interest rates," she added. "We want to get back to a normal interest rate environment, and if that alleviates the problem a little bit, that's not a bad thing, it's a good thing."

The Fed has pledged to begin tapering its $120 billion in monthly asset purchases only after “substantial further progress” in inflation and employment.

A report released by the U.S. Labor Department on Friday showed that U.S. job growth accelerated in May, workers' wages also rebounded, and the unemployment rate fell to 5.8%.

Yellen said: "Even if inflation rises, President Biden's spending plan will not be abandoned. U.S. monetary policy can respond to inflation risks. President Biden's spending plan is designed to address long-term needs. Higher interest rates should be an advantage for society and the Federal Reserve.