The Treasury Secretary has issued a clarification following a comment that had a significant impact on stocks.

At an event hosted by The Atlantic earlier this week, Treasury Secretary Janet Yellen discussed the current state of the US economy. When the topic of the Federal Reserve and interest rates arose, she expressed some concerns about a potential increase in interest rates.

Yellen mentioned, “It may be necessary for interest rates to rise slightly to prevent our economy from overheating.”

Although it seemed like an innocent remark, Yellen’s influential position in the economy led many investors to take her words seriously. Her concerns triggered a large sell-off on Tuesday, particularly affecting stocks that could be sensitive to an interest rate hike, such as tech stocks. Subsequently, Yellen made a follow-up statement at The Wall Street Journal’s CEO Council Summit to clarify her initial remarks.

Yellen stated, “I don’t anticipate there being an inflation issue, but if it does arise, we can rely on the Federal Reserve to address it.”

Treasury Secretary Janet Yellen suggested that increased government spending may lead to higher interest rates to prevent overheating https://t.co/cUM3h4CS3i

— Bloomberg Markets (@markets) May 4, 2021

Since then, the market has stabilized, prompting analysts to ponder the significance of Yellen’s statements and what challenges the Federal Reserve may encounter as the economy transitions back to normal after the pandemic.

“Markets reacted negatively to this statement that is quite obvious,” said Paul Donovan, the chief economist of UBS Global Wealth Management. “There will undoubtedly be an increase in rates in the future.”

“The question isn’t whether there will be some inflation this year, but whether it will signify an ‘overheating’ of the overall economy,” mentioned J. Bradford DeLong, an economics professor at the University of California, Berkeley, in a column.