US Stock Market: Yellen Rattles Investors with Cost of Infrastructure Spending, Higher Taxes

The major U.S. stock index futures fell on Tuesday as investors raised fresh concerns about the cost of infrastructure spending and potential tax hikes to pay for President Joe Biden’s $1.9 trillion relief bill.

According to Reuters, remarks by Treasury Secretary Janet Yellen that the U.S. economy remains in crisis from the pandemic as she defended developing plans for future tax increases to pay for the new public investments put investors on alert.

In the cash market on Tuesday, the benchmark S&P 500 Index settled at 3910.52, down 30.07 or -0.76%. The blue chip Dow Jones Industrial Average finished at 32423.15, down 308.05 or -0.94% and the technology-driven NASDAQ Composite closed at 13227.70, down 149.84, down 1.12%.

Yellen spoke at a hearing of the House Financial Services Committee after Federal Reserve Chair Jerome Powell addressed the committee.

Yellen Says Post-Crisis Plans Will Move to Infrastructure, Taxes

Treasury Secretary Janet Yellen said on Tuesday the U.S. economy remains in crisis from the pandemic even as she defended developing plans for future tax increases to pay for new public investments, Reuters reported on Tuesday.

Yellen spoke at a hearing of the House Financial Services Committee that was ostensibly to discuss the country’s recovery from the coronavirus-triggered recession, but turned instead into a skirmish over priorities far beyond it.

Republican members of the committee challenged Yellen and Fed Chair Jerome Powell on issues like plans to build climate change into financial regulation, and specifically quizzed Yellen on how the United States can simultaneously be in crisis and healthy enough to consider raising taxes.

The immediate hole remains deep, Yellen said, with “a huge problem of joblessness” following the loss of employment due to the pandemic.

“But once the economy is strong again President Biden is likely to propose that we engage in long-term plans to address longstanding investment shortfalls…in infrastructure, investment to address climate risk, investments in people, R&D, manufacturing,” she said. “It is necessary to pay for them.”

One possibility is boosting the corporate tax rate back to 28% and fixing a “global race to the bottom” in what companies pay.

Powell Downplays Threat of Inflation

On the broad economic environment, Powell downplayed concerns of some lawmakers about the possibility of coming inflation as the Fed’s loose monetary policy coincides with an economic reopening expected to spark the strongest growth since the 1980s, Reuters reported.

“We do expect inflation will move up over the course of the year,” but it will be “neither particularly large nor persistent,” Powell said in testimony after some members said they were concerned about rising prices.

“We have the tools to deal with that” if it becomes a problem, Powell said.

For a look at all of today’s economic events, check out our economic calendar.