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US Treasury secretary Janet Yellen cautioned the incoming administration led by Donald Trump against implementing extensive tariffs, citing the potential for increased inflation.
President-elect Trump has previously threatened significant tariffs on key US trading partners such as Canada, Mexico, and China. Yellen acknowledged the importance of addressing unfair trade practices but warned against broad tariff measures that could negatively impact sectors of the US economy and raise costs for households.
The potential inflationary pressures from such tariffs could jeopardize the progress made in reducing inflation levels after the spike in 2022 due to supply chain disruptions and pent-up demand.
In addition to tariff concerns, Trump has hinted at intervening in monetary policy decisions, a departure from the traditional Federal Reserve independence. Yellen, a former Fed chair, emphasized the importance of maintaining the central bank’s autonomy to preserve market confidence and trust in the institution.
While Trump has expressed support for tariffs as a negotiation tactic, he has backed off from plans to remove Federal Reserve chair Jay Powell before the end of his term in 2026. Despite legal limitations on such actions, the uncertainty surrounding the Fed’s independence remains a point of concern.
Yellen also raised alarms about the growing US national debt and the need to address fiscal sustainability, particularly in a rising interest rate environment. Pimco, a major bond investor, has expressed reservations about purchasing long-term US government debt amid uncertainties about sustainability and potential inflation under the new administration.