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From stimulus to bitcoin to taxes: A primer on a Janet Yellen-led Treasury

Brian Cheung
·Reporter
·6 min read
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The Biden administration hopes to move quickly on confirming Janet Yellen as the 78th Secretary of the Treasury.

The Senate Finance Committee voted 26-0 to advance the former Federal Reserve chair’s nomination Friday morning, likely setting up a final vote on the floor of the Senate next week.

Markets will be closely tuned into Yellen’s first steps as Treasury Secretary.

If confirmed, Yellen’s immediate task will be selling Congress on the Biden administration’s $1.9 trillion stimulus package.

Yellen will also have her hands full on a number of other issues important to markets, ranging from financial regulatory matters to international affairs.

Here’s a primer on the policies that a Yellen-led Treasury would pursue:

‘Big’ on stimulus

In her nomination hearing on Tuesday, Yellen emphasized the specific need to go “big” on stimulus.

As proposed, the Biden plan on COVID-19 relief would include additional $1,400 stimulus checks and an extra $400 per week in unemployment insurance benefits, among other provisions. Yellen said the best “bang for the buck” would be the bill’s public health spending to boost the vaccination process, in addition to relief to small businesses.

Yellen also pointed to the need to assist state and local governments with their massive budget shortfalls.

With a Democratic majority in the Senate and the House, the Biden administration has more legislative space to pass a larger package than it would have if the Democrats lost the run-off battle for Georgia’s two Senate seats.

UBS Global Wealth Management says that the increased odds of larger stimulus “make equity valuations look more reasonable,” especially in a low-interest rate environment.

“We see attractive opportunities among more cyclical companies, sectors, and markets,” UBS’s Mark Haefele wrote Thursday.

Higher taxes

The Biden administration’s framework for tax policy includes a steeper tax on those making more than $400,000 a year with a hike on the corporate tax rate to 28% (compared to the 2017 Trump tax cuts that lowered the rate from 35% to 21%).

Yellen said she would like to work with other nations on a globally coordinated approach to corporate taxes, adding that she does not want to harm the competitiveness of American businesses.

But she emphasized that her top priority is a tax base that supports investment in “things that will create good jobs,” such as infrastructure, manufacturing, and research and development.

“We need to think about taxes in the context of the package that aims to do those things. And to the extent that financing is required for these very valuable investments, I believe it should come in a fair way.”

U.S.-China trade relations

Yellen said that China is “our most important strategic competitor” but acknowledged the concerns over intellectual property theft and forced technology transfers, the issues at the center of the U.S.-China trade war between former President Donald Trump and Chinese President Xi Jinping.

Yellen broadly mentioned that she would prefer to deal with countries together rather than unilaterally, hinting that she would steer away from the Trump administration’s preference not to participate in group trade deals like the Trans-Pacific Partnership.

Yellen added that in cases where countries break the rules, “sanctions are a tool that can be very effective” — but was vague about how she might use that tool.

Fed policy

Yellen will also likely draw on her deep knowledge of monetary policy in working with her old colleague Jerome Powell, who currently heads the Fed.

Janet Yellen, President-elect Joe Bidens nominee for Secretary of the Treasury, participates remotely during a hearing, as she participates in a Senate Finance Committee hearing in Washington DC, on January 19, 2021. - Biden, who will take office on January 20, 2021, has proposed a $1.9 trillion rescue package to help businesses and families struggling amid the pandemic, and Yellen would be tasked with getting that massive bill through a Congress where some are wary of the skyrocketing budget deficit. (Photo by Anna Moneymaker / POOL / AFP) (Photo by ANNA MONEYMAKER/POOL/AFP via Getty Images)
Janet Yellen, President-elect Joe Bidens nominee for Secretary of the Treasury, participates remotely during a hearing, as she participates in a Senate Finance Committee hearing in Washington DC, on January 19, 2021. - Biden, who will take office on January 20, 2021, has proposed a $1.9 trillion rescue package to help businesses and families struggling amid the pandemic, and Yellen would be tasked with getting that massive bill through a Congress where some are wary of the skyrocketing budget deficit. (Photo by Anna Moneymaker / POOL / AFP) (Photo by ANNA MONEYMAKER/POOL/AFP via Getty Images)

Alongside Trump’s Treasury Secretary Steven Mnuchin, Powell helped prevent a full-on financial crisis by using the Coronavirus Aid, Relief, and Economic Security (CARES) Act funds to backstop markets ranging from corporate debt to municipal bonds. But several of those programs expired at the end of last year, and there are legal questions surrounding Yellen’s ability to re-open them.

“Yellen and Powell have advocated continued and robust support for the economy, which would eliminate the recent friction seen between Treasury Secretary Mnuchin and the Fed on the continuation of the Fed’s lending programs,” wrote Raymond James analyst Ed Mills when Yellen was nominated in November.

Yellen also made it clear that the Fed’s low interest rates are a reason why the Fed can afford to spend now.

“The interest burden of the debt interest as a share of GDP is no higher now than it was before the financial crisis in 2008,” Yellen said Tuesday.

Financial regulation

The Biden administration is rounding out his agency appointments, with Gary Gensler expected at the head of the U.S. Securities and Exchange Commission (SEC) and Rohit Chopra at the top of the Consumer Financial Protection Bureau (CFPB).

Compass Point’s Isaac Boltansky wrote Monday that the appointments hint at a regulatory agenda with a “meaningful ramp in supervisory, enforcement, and rulemaking activity.”

But in the banking space, Yellen told Congress she was “pleased to see” capital levels at the banks through the pandemic, suggesting that she was broadly comfortable with where regulatory settings are.

The Trump administration implemented some rollbacks of the Dodd-Frank framework for financial regulation installed by the Obama administration after the financial crisis. And even though the Biden administration is reportedly planning on appointing Michael Barr, one of Dodd-Frank’s architects, to be a key banking regulator, Sherrod Brown, the top Democrat on the Senate Banking Committee, suggested he would not work to undo those Trump regulatory rollbacks.

For her part, Yellen’s focus may be on financial policies focused on climate change, which she described on Tuesday as “an existential threat.” Yellen said she plans on appointing someone “at a very senior level” within the Treasury to focus specifically on financial system risks and tax benefits related to climate change. The Federal Reserve has already called for more transparency from financial firms on climate risks.

Digital currencies

In 2018, Yellen said she was “not a fan” of the plethora of cryptocurrencies out there. But Yellen may soften her tone as the Fed explores the development of its own stablecoin.

Over the last few years, the Fed has been conducting experiments on digital dollars and, by extension, the use of a central bank-issued digital currency. Fed officials have made it clear that while they are experimenting with the technology, they have not committed to actually launching one.

Still, Yellen’s remarks to Congress do not point to a warm view toward cryptocurrencies.

“Cryptocurrencies are of particular concern, many are used, at least in a transaction sense, for illicit financing,” Yellen said Tuesday. “I think we really need to examine in which we can curtail their use and make sure that anti-money laundering doesn't occur through those channels."

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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