Janet Yellen: US economy sidesteps K-shaped recovery

Yellen is pushing Biden's $6 trillion Budget to help low-income countries

The U.S. economy is rebounding evenly for many Americans, avoiding a K-shaped recovery, according to U.S. Treasury Secretary Janet Yellen

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"When I took office, one of my greatest concerns was a K-shaped recovery from the pandemic; a recovery where high-income households rebounded quickly – or even emerged better-off – while low- and middle-income families suffered for a very long time. We can be confident now that’s not going to happen, thanks in part to your support of the fiscal stimulus in the American Rescue Plan," said Yellen in her prepared remarks ahead of Congressional testimony. 

A K-shaped recovery happens when different parts of the population and businesses recover from a recession at different paces.

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However, the former Fed chair warned, the same cannot be said for other countries still struggling from the pandemic. The funds, she says, to aid these nations, can come from President Biden's $6 trillion proposed budget

"America is better off in a wealthier, vaccinated world than a poorer, unvaccinated one" she noted adding. "The United States must lead in addressing this global divergence. The Treasury Department is prepared to be part of this leadership. We just need the resources."

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Yellen pointed to four areas, outlined below:

  • Funding for international financial institutions (or IFIs) like the World Bank and the African Development Bank
  • Low-income-country debt. The United States led in creating the G20 Debt Service Suspension Initiative (or DSSI) and the Common Framework for Debt Treatments for precisely this reason, but now we need to fund both
  • Funding for the IMF’s Poverty Reduction and Growth Trust – and authorization to lend Special Drawing Rights to it or another appropriate fund
  • Low-income nations need help with climate change because that’s the only way we’ll reach net-zero emissions, as a global community. Treasury’s request includes roughly $1 billion for this purpose

Source: Testimony of Secretary of the Treasury Janet L. Yellen to the Subcommittee on State, Foreign Operations, and Related Programs, U.S. House of Representatives