US Treasury Secretary Janet Yellen has defended the Biden administration’s handling of the COVID-19 economic crisis in her final major speech before leaving office.
Speaking to the New York Association of Business Economics, Yellen said stimulus measures stabilized the economy and prevented millions of job losses.
Key measures included:
- Direct stimulus checks to households
- Expanded child tax credits
- Enhanced unemployment benefits
According to Yellen, these Covid policies helped sustain consumer spending despite pandemic-driven disruptions. She also pointed out that inflation in the US declined faster than in other advanced economies.
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Economic Recovery and Inflation
Yellen highlighted the US economy’s strong post-pandemic performance.
She said there was:
- A faster recovery compared to past recessions and other developed nations
- A prolonged period of sub-4% unemployment, unseen since the 1960s
- A significant reduction in long-term unemployment risks
While acknowledging that stimulus spending may have slightly contributed to inflation, she insisted that it was necessary to offset income losses for millions. According to her, avoiding a deep economic downturn outweighed concerns over temporary inflation spikes.
The Risks of Cutting Stimulus Too Soon
Yellen argued that a policy focused solely on suppressing inflation could have led to:
- A sharp drop in consumer spending
- Increased unemployment rates of up to 14% in 2021-2022
- An additional 9-15 million job losses
She emphasized maintaining demand during Covid allowed the economy to avoid widespread hardship and skill erosion among workers.
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The Fiscal Deficit Challenge
Despite the strong recovery, Yellen warned about mounting fiscal challenges. The US fiscal deficit currently stands at 6.4% of GDP, a historically high level.
She called for efforts to:
- Sustain investments in infrastructure and clean energy
- Address structural issues affecting middle-class families
- Reduce the deficit without cutting essential programs
She criticized plans to extend the Trump-era tax cuts, estimating that doing so could add $4-5 trillion to deficits by 2035. She warned that unsustainable budget policies could weaken the Treasury market and even spark a debt crisis.
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What’s Next for US Economic Policy?
As President-elect Donald Trump prepares for his second term, Yellen cautioned against drastic policy shifts, particularly regarding tax cuts and tariffs.
She also defended ongoing IRS modernization efforts, arguing that rolling them back could cost the government an estimated $851 billion in revenue over the next decade.
With a strong but uncertain economic outlook, Yellen urged policymakers to focus on long-term sustainability rather than short-term political gains. Whether her warnings will influence future policies remains to be seen.
