What Lies Ahead for Yellen as Treasury Secretary

Janet Yellen, the former chair of the Federal Reserve, is President-Elect Biden’s pick to be the Treasury secretary. Yellen will still have to be confirmed by the Senate, but this is likely to happen, as many of the current senators confirmed her for her role at the Fed and she garnered bipartisan praise over her term of service there. In other words, Yellen is a known quantity for lawmakers and Wall Street. We’ll look at what Yellen’s time at the Fed can tell us about what might be ahead in her role as Treasury secretary.

Continuing a Career of Firsts

Yellen was the first woman to serve as Fed chair, and she will continue that trend as the first woman to serve as Treasury secretary. Yellen was well qualified as Fed chair with a PhD in economics, tenure in academia, and a decade as a board member at the Fed, serving as vice-chair prior to being named as chair. These same qualifications will serve her well as Treasury secretary. However, the mandates, the portfolios, and the tools Yellen will have at her disposal in her new position are quite different.

The Treasury Compared to the Fed

The chair of the Federal Reserve wields significant financial power through the central bank’s supervisory role over the banking system and its role in dictating monetary policy, but the position itself is often seen as apolitical. In fact, Yellen’s departure from the Fed when President Trump took power was a departure from a practice of keeping the serving Fed chair despite changes in government. The Treasury secretary, in contrast, is a political role that is expected to advise the president on economic policy, collect taxes, print money, enforce sanctions, and generally manage the federal finances.

In her new role, Yellen will be expected to deliver on President-Elect Biden’s economic agenda. Yellen already has clear areas of agreement with the president-elect and the broader Democratic party, including a desire to address income inequality and encourage more participation by women and minorities in the labor force.

The Challenges Facing Yellen

Yellen served in the aftermath of the Great Recession, so dealing with the lingering effects of a crisis is nothing new for her. In fact, her steadfast insistence on keeping interest rates lower for longer than common sense at the time suggested allowed the economy – and particularly employment – to rebound with fewer consequences than inflation hawks expected. As Treasury secretary, however, Yellen will be taking charge of government finances while the pandemic-related economic storm is still raging.

Rather than making bold choices on interest rates, Yellen will be responsible for raising the money needed to pay for what is expected to be a several trillion dollar spending package. The elements of this yet-to-be-announced package will include measures focused on COVID-19, infrastructure spending, and targeted climate change spending. This spending is going to face stiff political opposition by House and Senate Republicans as the federal government will be just coming off a $3 trillion deficit this fiscal year.

Yellen is on record as supporting more spending in the face of the downturn, particularly as inflation risks remain low. This suggests that the Biden administration will be swinging for the fences on a stimulus package and depending on Yellen to convince a number of Republicans that the risks are reasonable in the near term. The market expectation that Yellen can do this has been growing since the announcement that she was Biden’s pick, and investors have been backing out of safe havens and pushing down the dollar on the promise of vaccines and stimulus to come.

The Bottom Line

Yellen is definitely qualified to serve as Treasury secretary. In addition to serving as chair of the Federal Reserve under Obama, Yellen was the head of the Council of Economic Advisers under Clinton, and her academic qualifications are impeccable. Investors and other market participants have been combing through her past statements to find hints on everything from her feelings on free trade to any utterances she’s made on cryptocurrencies.

The catch is that Yellen will, in many ways, have less true independence as Treasury secretary than she enjoyed as Fed chair. Yellen will have to craft and defend the stimulus package meant to spur a post-COVID recovery even as the disease is still spreading fast across the U.S. – and after that task is done, she will be responsible for addressing the dent it leaves in the national finances. For certain, Yellen is qualified to do the job. The question is whether she will still want it after what is setting up to be a politically bruising 2021.