Treasury Secretary Janet Yellen insisted Tuesday that she is not concerned about the risks of economic overheating hours after her earlier comments about inflation caused a brief panic on Wall Street and invited fresh scrutiny about the White House’s position.

The confusion sparked by the treasury chief showed the delicate situation the Biden administration confronts as it seeks to demonstrate its attention to inflationary pressures without fueling criticism that its spending packages could hurt the economy.

First, in an interview with the Atlantic that was released Tuesday morning, Yellen defended the administration’s new spending proposals and said the central bank could handle inflationary pressures with modest interest rate increases.

The Fed sets interest rate policy, but Yellen has a unique vantage point, having led the central bank at the end of the Obama administration and beginning of the Trump administration. Raising interest rates can slow the pace of economic growth by increasing the cost of borrowing, a tool for fighting inflation.

“It may be that interest rates will have to rise somewhat to make sure our economy does not overheat, even though the additional spending is relatively small relative to the size of the economy,” Yellen said. “It could cause some very modest increases in interest rates to get that reallocation.”

Asked about Treasury Secretary Janet Yellen’s interest rate remarks on May 4, press secretary Jen Psaki said she was conveying White House decision making. (The Washington Post)

Her comments briefly led the stock market to dip and seemed to suggest that White House officials were acknowledging that inflationary pressures were a growing concern.

At a separate event with the Wall Street Journal later Tuesday, Yellen was adamant that she was not concerned about inflation and stressed that she was not predicting or recommending an imminent increase in rates.

“I don’t think there’s going to be an inflationary problem, but if there is, the Fed can be counted on to address them,” Yellen said.

The confusion over Yellen’s remarks reflect the broader challenge facing Biden administration officials as they try to demonstrate that they are carefully assessing the economic consequences of their agenda.

“US policymakers are testing the limits of Goldilocks: They are trying to heat up the economy as fast as possible without generating serious inflation,” economists at Bank of America Global Research wrote in a recent note.

Yellen has been treasury secretary only for several months, but she has decades of experience as a policymaker and is not known for verbal miscues.

The Biden administration has so far not suggested it is rethinking any of its ambitious spending plans in the face of inflationary price pressures, and Yellen said late Tuesday that the proposals were all necessary to help the economy.

Although some economists have complained about all the new and proposed government spending adding to inflationary pressures, a number of factors appear to be driving prices higher in certain sectors. Some of them have nothing to do with the government’s spending.

For example, the sudden restarting of the U.S. economy and continued problems in global supply chains have led to shortages of a range of items — including computer chips and rental cars — driving prices sharply higher.

Yellen’s initial remarks added to a dip in the stock market, though the impact was negligible by the time markets closed in the afternoon.

Even though Yellen sought eventually to play down the near-term risks of inflation, another senior White House official made clear Tuesday that the risks posed by rising prices were something the Biden administration was monitoring closely.

“We take inflationary risk incredibly seriously,” White House press secretary Jen Psaki said.

During the Trump administration, President Donald Trump pressured the Fed to lower interest rates to juice the economy and offset in part the economic pressures caused by his trade disputes. Yellen’s initial comments on Tuesday, the ones about interest rate increases potentially being necessary, suggested that the Fed could be needed for a different purpose, to cool off an economy that was growing too quickly.

Trump was criticized for trying to jawbone the Fed from the White House, and Yellen tried to make clear on Tuesday that she was not trying to sway the central bank.

“If anybody appreciates the independence of the Fed, I think that person is me,” she said at the Wall Street Journal event.

Inflation in recent months has emerged as a potential concern among leading economists, prompting an extensive White House review.

The federal government has pumped trillions of dollars of emergency spending into the U.S. economy since last year. That includes Biden’s $1.9 trillion stimulus package, which was passed in Congress in March. Some analysts fear this surge in cash will lead consumer demand to outstrip supply, bidding up prices in a way that hurts many Americans. But there are a variety of forces causing supply shortages. The global supply chain for many products remains under strain, and many products or components remain inaccessible or in short supply, driving up prices.

The Federal Reserve does have tools to address inflation, but for decades it has not had to act aggressively to combat inflation. The most extreme recent example of such intervention was in the late 1970s and early 1980s, when the Fed raised its benchmark interest rate to 20 percent in an effort to contain inflation. High interest rates can have other effects on the economy, manifesting themselves as high unemployment and cash-flow problems for businesses.

The economic conditions now are much different from 40 years ago, and Fed Chair Jerome H. Powell has not suggested at all that the Fed sees inflation as a near-term concern.

“We’ve been living in a world of strong dis-inflationary pressures — around the world, really — for a quarter of a century, and we don’t think that a one-time surge in spending leading to temporary price increases would disrupt that,” Powell told Congress in March.

The first-quarter report on economic growth, released by the Bureau of Economic Analysis last week, said prices grew at a 3.5 percent annualized rate in the first quarter and were up 1.7 percent from a year earlier. For now, inflation has primarily spiked only in specific sectors, such as the housing and lumber markets, as suppliers struggle to catch up with a surge in consumer demand. The most common measure for aggregate inflation has remained in check, at least up to this point.

Biden has proposed more than $4 trillion of additional spending that would be infused into the economy over the course of the decade. The White House says those programs are accounted for with tax increases. Those increases could in theory reduce the programs’ inflationary impact, because the government would be taking about as much money out of the economy as it was putting in. But the administration has proposed levying those taxes on corporations and high-income Americans, meaning that the increases may do little to slow economic demand because the rich spend a smaller proportion of their income than do beneficiaries of the new federal spending.

After contracting sharply last year, the economy appears poised to grow rapidly in 2021. But the economic recovery has been uneven so far. The stock market is at near-record highs, but millions of Americans remain unemployed, and some parts of the economy are having a hard time snapping back to pre-pandemic levels. Prices on some commodities have risen sharply, adding to inflation fears, and there is a shortage of the computer chips that go into a number of products.

Rachel Siegel and Tony Romm contributed to this report.

correction

Because of an editing error, an earlier version of this article mischaracterized March comments from Federal Reserve Chairman Jerome H. Powell. Powell was referencing "dis-inflationary" pressures, not "deflationary" pressures.