Tone Deaf Yellen

In a Bloomberg interview on Sunday Treasury Secretary Janet Yellen made quite possibly the most tone-deaf statement that might go down in history as the 2nd wrong-est thing a Former Fed chair has said since, the pre-2008 subprime housing market crisis was “contained,” infamously claimed by her colleague Ben Bernanke in the Fall of 2007. Yellen, in a preemptive move to prepare the country for runaway inflation in the coming months, stated that “a slightly higher interest rate environment…would actually be a plus for society’s point of view.”

While interest rates have fluctuated wildly over time, her statement come across as completely disjointed from what Main Street (and even Wall Street) need to hear right now.

Higher interest rates would not be a plus at face right now. While they need to be higher (they should have never cut by this much in the first place) getting to a higher place is going to bring pain to most Americans. Raising rates are going to cripple the housing market, suffocate highly indebted industries, and stifle consumer credit spending. While inflation has arrived as a result of the Fed’s zero interest rate policy and needs to be fought, it is completely asinine that the Treasury Secretary is painting this as a plus.

It must be assumed that the Secretary believed that the high savings rate we’ve been seeing has trickled down to those of us on Main Street. Higher rates would benefit the savers as they collect interest. However, it will be months before banks pass on higher rates in the form of consumer savings rate. Inflation is set to pass 3% this year and even the best rates before the Fed’s premature cuts failed to outpace that level. The savers will also loose out on the inflation tax.

The comments from the Treasury Secretary as so disjointed from reality it is almost laughable if it wasn’t so sad. If she really thinks Americans are going to brush off this higher inflation and higher rate period she is going to be in for a surprise. Madame Secretary, please prepare yourself for a seized up housing market and bankruptcy carnage on all the businesses hooked on cheap debt. Rates should have been increased higher and faster in good times, not cut back in the Fall of 2008, and immediately normalized last spring back when we learned the pandemic wasn’t going to end us all.