Yellen urges G7 to keep up fiscal support, sees inflation as transitory

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LONDON/WASHINGTON — U.S. Treasury Secretary Janet Yellen on Saturday urged her G7 counterparts to keep up fiscal support for their economies, despite “transitory” inflation that she said will remain elevated through the rest of the year.

Yellen told a news conference after G7 finance ministers met in London that fiscal support was still needed to bolster economic recovery from the COVID-19 pandemic and to make needed investments to fight climate change and inequality.

While G7 countries have had robust fiscal responses to the pandemic, she said “there is a concern among some about fiscal sustainability, and an evident desire to begin to withdraw accommodation when things are back on track,” Yellen said.

“And we think that most countries have fiscal space, and have the ability to put in place, fiscal policies that will continue promoting recovery and deal with some of the long run challenges that all of us face when it comes to climate change and inclusive and sustainable growth, and we urge countries to do that,” she said.

In prepared remarks for the post-meeting news conference, Yellen also praised an agreement to pursue a global minimum tax of at least 15% on corporations as helping to stabilize tax systems while preserving national authority to set tax rates and policies.

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Yellen said inflation will remain elevated at 3% on a year-over-year basis until about the end of 2021.

“I personally believe that this represents transitory factors,” she said, adding that production bottlenecks have caused elevated prices in some industries, such as motor vehicles, while other prices, such as airline fares, are rising back to more normal levels.

There is still slack in the labor market, she said, because of people who have lost jobs permanently, and it will take a while to reabsorb those workers into the economy.

“So we shouldn’t expect this process to be complete in a month or two,” Yellen said. “And while we’re seeing some inflation, I don’t believe it’s permanent.”

Yellen said the G7 finance ministers agreed to ambitious commitments to de-carbonize their economies and mobilize public and private finance for action to combat climate change.

“To facilitate the mobilization of private climate finance, the G7 also agreed to take action to improve the availability of consistent, comparable, and decision-useful climate-related financial information to market participants,” Yellen said in prepared remarks. (Reporting by David Lawder Editing by Bill Berkrot)

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