Volkswacht Bodensee - Yellen warns against extending Trump's first-term US tax cuts

"The projected fiscal path under current budgetary policies is simply not sustainable," she said, in what is likely to be her final major speech in office.

"The consequences of inaction, or action that exacerbates projected deficits, could be dire," she added in remarks at the New York Association for Business Economics, just days before Trump returns to the White House.

On the campaign trail, Trump pledged tax reductions with benefits across income levels.

The 2017 cuts, enacted by Trump in his first term, lowered rates for businesses and individuals. But some provisions are set to expire at the end of the year.

Yellen pointed to estimates that extending provisions of the Tax Cuts and Jobs Act could add around $4 trillion to deficits through 2034.

While the act lowered income taxes for many in the United States, they have been criticized for being more beneficial to the wealthy.

Yellen cautioned that policies like extending the cuts "could undermine our country's strength, from the resilience of the Treasury market to the value of the dollar, even provoking a debt crisis in the future."

"Misguided economic policymaking," she added, would weigh on the next generation.

Looking ahead, she urged for the US government to "give more weight to fiscal sustainability concerns when determining both tax and spending priorities."

In her speech, Yellen also said that it was critical for the United States to sustain investments in cutting-edge industries and research and development.

She defended policy decisions of the Biden administration in the period of the Covid-19 pandemic as well, saying its "fiscal policy choices saved millions of jobs."

Although she acknowledged that "the prices of many everyday goods soared," she argued that government support helped avert significant hardship, allowing Americans to return to work quickly.

She also stressed that inflation in the world's biggest economy fell earlier than in its major peers.

"All policy choices entailed trade-offs, but the Biden administration made sound decisions that set the economy on a strong course," she said.

Cost of living concerns were a major voter concern during November's presidential election, which propelled Trump to victory.

H.Gerber--VB