Biden Policies Would Help Unwind Destructive Forces of Inequality, Climate Change, Yellen Says

“We need to make these investments at some point, and now is fiscally the most strategic time to make them,” she said.

Ms. Yellen also said the administration was carefully monitoring inflation, but reiterated that she saw current price pressures as transitory while the pandemic eased and the economy continued to reopen.

The White House budget projected the consumer-price index would rise 2.1% in 2021, but those forecasts were prepared in mid-February, Ms. Yellen said, before economic activity had picked up.

“We’re going to be doing a mid-session review and coming out with a new forecast, and certainly for this year inflation will be higher than that,” she said.

Consumer prices rose 5% in May from a year earlier, the Labor Department said last week, the biggest inflation surge in 13 years.

Republicans pressed Ms. Yellen on whether the Biden administration’s spending proposals would trigger unwelcome price increases and pile on more federal debt.

While federal debt has climbed during the pandemic, the Biden administration expects interest payments on the federal debt to remain well below historic levels through the coming decade. Ms. Yellen also noted the administration has proposed to pay for its long-term economic policies through tax increases on companies and wealthy Americans.

“There are some tough trade-offs in fiscal policy, but this—a fairer tax code for a structurally sound economy—is not one of them,” she said.

President Biden has proposed plans for $4.5 trillion in spending on infrastructure and social programs over the next decade. Ms. Yellen’s testimony comes as Democratic leaders began discussing a broad-ranging child care, climate and education package this week in an effort to appease the concerns of the party’s liberal wing over the narrower scope of a bipartisan infrastructure proposal under discussion.

As part of global tax negotiations, Ms. Yellen said the U.S. would continue working to get other countries to remove digital service taxes that affect large U.S.-based technology companies operating overseas. She said the U.S. has indicated that withdrawal of those taxes is important and that the U.S. is continuing to hold potential trade sanctions in reserve to persuade other countries to act.

“We’re keeping that tool available to use if it were to become necessary to get prompt action,” she said.

Several Republicans, including

Sen. Mike Crapo

(R., Idaho) and

Sen. Pat Toomey

(R., Pa.), criticized the administration’s move to get other countries to adopt minimum levels of corporate taxation.

“That’s not a race to the bottom that we ought to try to prevent,” Mr. Toomey said. “That’s a race we ought to be winning.”

Ms. Yellen also said the government would take any necessary actions to protect taxpayer data following the release of information about wealthy Americans in an apparent leak to ProPublica.

“We’re only one week out on this and I really want to emphasize: We do not know what happened,” Ms. Yellen said. “We don’t have any facts at this point.”

Several government agencies and inspectors general are investigating the leak; it is illegal for Internal Revenue Service employees to disclose taxpayer data. Ms. Yellen said officials didn’t know whether a leak from the IRS was involved.

Write to Kate Davidson at kate.davidson@wsj.com and Richard Rubin at richard.rubin@wsj.com