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What Biden’s Pick of Yellen for Treasury Means for the Economy and Stimulus

Yuval Rosenberg
·6 min read

Janet Yellen has had a long and distinguished career as an economist, from the halls of academia to the White House to the Federal Reserve. Her next job, as Neil Irwin suggests at The Upshot, may be her toughest one yet. Yellen is reported to be President-elect Joe Biden’s pick for Treasury secretary, meaning she will have a key role in helping the incoming administration fight the economic devastation wrought by the coronavirus pandemic.

“As Treasury secretary, Ms Yellen will be forced to enter the political fray more than in her previous roles,” James Politi and Colby Smith write in the Financial Times. “Although she faced frequent grillings from Congress as a Fed official, including her own confirmation hearing, she will now have to negotiate with recalcitrant Republicans measures to boost the economy, and defend them to a deeply polarised American electorate.”

A pioneering pick: Yellen, 74, is currently an economist at the Brookings Institution. A pioneer throughout her career, she would be the first woman to head the Treasury Department since it was created in 1789. She was the chair of the Federal Reserve from 2014 to 2018 — the first woman ever to hold that job, too — and served as head of President Bill Clinton’s Council of Economic Advisers in the late 1990s. Yellen would be the first person ever to serve in the top posts at the White House Council of Economic Advisers, the Federal Reserve and Treasury.

“If confirmed by the Senate as Treasury secretary, Janet Yellen will be among the most accomplished people to take over the big office at 1500 Pennsylvania Avenue in the 231-year history of the department,” Irwin writes. “Few people in any era have served at the highest levels of economic policymaking for as long, and with as much distinction.”

Yellen’s resume is somewhat unusual for a Treasury chief. “Her pre-government background came largely as an academic economist and monetary policy expert. The top Treasury slot often goes to people — until now all men — with extensive corporate backgrounds and high-profile international experience,” Politico’s Ben White notes. As Treasury secretary, Yellen will be thrust into the middle of political battles that she could sidestep as Fed chief.

But her expected selection was met with widespread praise, with former Trump economic adviser Gary Cohn and Democratic Sen. Elizabeth Warren of Massachusetts among those voicing their approval. Yellen’s selection is seen as an effort by Biden to bridge differences within the Democratic Party, even as some on the left have criticized Yellen for starting to raise interest rates while at the Fed. The president-elect last week said his Treasury pick was “someone who will be accepted by all elements of the Democratic Party, from the progressive to the moderate coalitions.”

Markets also cheered the selection. Biden’s choice “was seen as a win for markets, since the former Federal Reserve chair should focus on fixing the economy rather than the progressive Democratic agenda feared by some investors,” CNBC’s Patti Domm says.

Pushing for more stimulus: It’s not clear yet what role Yellen might take in negotiations with Congress over additional coronavirus relief efforts, but she has become a leading advocate urging lawmakers to provide more stimulus to address the pandemic and its economic fallout.

“In her time in the Clinton administration, Yellen was supportive of efforts to balance the federal budget, but she has become an advocate of spending more money now that interest rates are at historic lows, making it cheap for the U.S. government to borrow money,” The Washington Post’s Jeff Stein and Rachel Siegel report.

A New York Times piece she co-authored in August month called on lawmakers to step up: “When unemployment is exceptionally high and inflation is historically low, as they both are now, the economy needs more fiscal spending to support hiring.”

The Financial Times reports that Yellen delivered the same message in a conversation with Biden and his running mate, Kamala Harris, that month, telling the Democratic candidates that there was enough fiscal space for additional investment. She has since reiterated her call for more stimulus spending. “This is not a good time to have fiscal policy switch from being accommodative to creating a drag,” Yellen told the Journal in October. “That’s what happened [last decade], and it retarded the recovery.”

Yellen may try to undo Mnuchin’s latest move: Analysts expect that Yellen’s long history at the Fed will lead to close collaboration with Fed chief Jerome Powell and other monetary policymakers.

“The pandemic response has been organized as a joint effort between the Treasury, which is putting up billions of dollars in capital to support debt markets, and the Fed, which administers the programs and lends billions more from its own limitless balance sheet to make them more powerful,” Irwin writes at The Upshot. “But there have been clear schisms thus far. The Fed has been more inclined to structure the programs to help the economy more but with greater risk that the Treasury will lose money, while the Trump Treasury has been more cautious.”

Yellen may be open to acting more aggressively. “Given Yellen’s background at the Fed,” Eric Stein, chief investment officer for fixed income at Eaton Vance, told the FT, “her views will be very much in line with the Fed and she will want the Fed to be able to provide as much credit to various sectors of the economy as possible.” (Her nomination, we should note, is already leading some to question the future of the Fed’s independence from the Treasury.)

Yellen may also look to reverse Treasury Secretary Steven Mnuchin’s decision to let certain emergency lending programs expire at the end of the year, a decision that Powell and others objected to, with some criticizing it as a political maneuver meant to hamstring the incoming Biden administration. “Though Yellen, if confirmed, could at least partially reopen them, the terms of the CARES Act — the massive spending program approved by Congress at the onset of the pandemic in March — potentially limit the secretary’s authority to send more funds to cover losses from Fed loans after the end of the year,” Politico’s Victoria Guida writes.

Mnuchin reportedly is set to move $455 billion in unspent coronavirus relief funds from the Treasury Department’s Exchange Stabilization Fund into the General Fund, meaning that Yellen would need authorization from Congress to tap into the money. “Any move by Yellen to take the money back out of the general account and into the stabilization fund would likely trigger a wave of Republican protests -- a battle she may prefer to avoid early in her tenure,” Bloomberg’s Saleha Mohsin reports.

Sen. Pat Toomey (R-PA), likely to become chairman of the Senate Banking Committee, signaled in a tweet Tuesday that Yellen should be cautious about looking to restart the emergency lending programs without congressional action.

The bottom line: Yellen is widely respected, but her calls for more stimulus are still likely to be met with Republican resistance that tests her ability to navigate heated political negotiations.

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