Interest rates may need to rise slightly to prevent the U.S. economy from overheating if President Joe Biden’s infrastructure proposals worth more than $4 trillion are signed into law, said Treasury Secretary Janet Yellen in a speech released Tuesday.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” Yellen said in a pre-recorded conversation with the Atlantic when asked if the price tag on Biden’s latest plans came with an economic risk. “But these are investments our economy needs to be competitive and to be productive. I think that our economy will grow faster because of them.”

The remarks are significant because they come from Biden’s top economic counselor and are a key break from what officials have been saying on the Federal Reserve, the institution in charge with setting short-term interest rates that Yellen formerly led before President Donald Trump replaced her with Chairman Jerome Powell.

Powell just last week during the Fed’s April interest rate-setting meeting swatted away worries about inflation and overheating, even amid Congress spending almost $3 trillion so far this year. Instead, he underscored plans to keep the Fed’s benchmark interest at its lowest levels in history as workers recover past the devastating coronavirus shock. That could last as long as three more years, according to the latest projections from U.S. central bankers.

Yellen is not a member of the Fed’s rate-setting Federal Open Market Committee (FOMC) and does not have a say in setting borrowing costs.

“Yellen and successor Chairman Jerome Powell do not sound as if they are singing from the same hymnal when it comes to the outlook for interest rates,” says Mark Hamrick, Bankrate senior economic analyst and Washington bureau chief. “But of course, she is not currently sitting at the Federal Reserve. She’s now a cabinet official for the Biden administration. So, it isn’t a decision she can or needs to make.”

What Yellen’s comments could mean for borrowing and savings rates

But not all interest rates within the U.S. financial system are directly controlled by the FOMC, particularly mortgage rates and other longer-dated loan costs.

The 30-year, fixed rate mortgage is more directly controlled by the 10-year Treasury yield, which has risen 70 basis points since the start of this year on expectations of a stronger economy bolstered by vaccinations and reopenings. Mortgage rates have followed suit, rising by a quarter of a percentage point since the start of this year and topping 3 percent since mid-February, though that’s not far from historic lows, according to Bankrate data.

Helping to keep a lid on mortgage rates, Fed officials have been buying Treasury and mortgage-backed securities at a massive pace of at least $120 billion a month, which they plan to continue until the economy has made “substantial further progress” back toward the Fed’s goals of stable prices and maximum employment.

Before raising interest rates, the Fed would likely draw back those asset purchases. Powell has repeated on numerous occasions that the Fed would let markets and consumers know well in advance of when that would occur.

On the price pressures front, officials only see temporary increases in inflation, reflecting supply bottlenecks and a reopening U.S. economy.

“It would seem to be that Yellen believes that more significant or sustained inflation is a higher risk than what Powell has essentially repeatedly pledged should be short-lived or ‘transitory,’ one of his new favorite words,” Hamrick says.

Credit card rates and home equity lines of credit (HELOC) tend to track the prime rate, which typically stays about 3 percentage points above the federal funds rate. Savings rates, meanwhile, are likely to stay at record lows as no rate hike is in sight, though banks could start to gradually raise yields as consumers start withdrawing their deposits and spending more as pandemic-induced restrictions are lifted.

Homebuyers and would-be refinancers: What to consider doing

Even though mortgage rates have modestly risen over the past two-plus months, homebuyers and individuals who are considering refinancing their mortgage can still find deals on the market. That happens by shopping around, with experts typically recommending consumers compare options from three or more lenders.

Meanwhile, homeowners who are still on the fence about refinancing haven’t missed their chance but might want to act quickly, even as the Fed plans to stay the course with zero rates.

While Powell has said the Fed isn’t even “thinking about thinking about” raising interest rates, he has still telegraphed that the Fed would adjust course if inflation proved to be more of a threat.

“Based on an FOMC statement issued and news conference held just a number of days ago, it is safe to say that Janet Yellen’s speculation and the real-time thinking of the FOMC, are not fully in alignment,” Hamrick says. “While members of the Federal Open Market Committee will likely be aware of Yellen’s comments, they’re already mindful that if it turns out that they are wrong, that inflation is more of a problem, or longer-lived, than they’ve believed, they will then have a more serious discussion about the need to pull the interest rate trigger. But that’s not their primary plan as of now.”

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