WASHINGTON – The expected appointment of Janet L. Yellen as Secretary of the Treasury will place the former Federal Reserve Chairman in a critical role overseeing President-elect Joseph R. Biden Jr.’s economic and national security agenda in an agency which has increasingly become a center of power.
Although Ms. Yellen’s views on monetary policy have been well known since she headed the central bank, her views on a range of issues that are part of the Treasury Department’s portfolio are less well known.
As Secretary of the Treasury, Ms. Yellen will be the principal economic diplomat in the Biden administration and will face the challenge of re-engaging with American allies who have been put off by President Trump’s “America First” economic policies. , including its use of tariffs. She will most likely be the resource person in the negotiations with China and will have a substantial contribution on trade policy, as well as on the use of US sanctions against countries such as Iran and North Korea.
Domestically, Ms. Yellen will be the driving force behind the Biden administration’s tax policy – an important role given Mr. Biden has made raising taxes on wealthy Americans and businesses a central part of his campaign. . Ms Yellen will also have the opportunity to change regulations stemming from Mr Trump’s 2017 tax cuts, which left a lot of care to the Treasury to put in place a new tax regime for multinational companies. Under a Biden administration, the department could revise those regulations to increase taxes for some companies operating abroad.
And it will also be at the center of the government’s borrowing frenzy, which is funded by the issuance of Treasury securities and has pushed the US budget deficit to levels not seen since World War II.
Here’s what we know, so far, about Ms Yellen’s views in several areas where she will have a role to play.
Although Ms Yellen is known to be dovish when it comes to monetary policy – which means she supports lower interest rates – she has repeatedly expressed concerns about the U.S. fiscal trajectory and the amount that ‘they borrow.
Ms Yellen’s budget concerns came before the coronavirus pandemic and the current downturn, a time when most economists urged the United States not to worry about the deficit and to spend as much as needed to help households and companies to overcome the crisis.
Yet Ms Yellen’s previous comments suggest that she might be reluctant to push for big spending programs without raising taxes to offset the fiscal blow. The federal budget deficit hit a record $ 3.1 trillion in fiscal 2020 and Republicans, who are expected to control the Senate, have once again started to voice concerns about how much the country is borrowing.
In a 2018 interview with the Charles Schwab Impact conference in Washington, Ms. Yellen said that the US debt trajectory was “unsustainable” and offered a remedy: “If I had a magic wand, I would go up. taxes and reduce retirement spending. ”
Last year, Ms. Yellen touched on the third rail of Democratic politics when she suggested more directly that cuts to Medicare, Medicaid and Social Security might be in order.
“I think this won’t be resolved without some additional income on the table, but I also find it hard to believe that it won’t be resolved without some changes to these programs,” Ms. Yellen told the National Center for investment for seniors. Fall Conference on Housing and Care.
Ms Yellen added that political candidates and Congress did not like dealing with the overhaul of America’s welfare programs which – according to McKnight’s Senior Living, a trade publication – she described as “the root canal economy.” .
Ms. Yellen is also a board member of the Committee for a Responsible Federal Budget, a non-partisan organization that advocates budget cuts.
As Secretary of the Treasury, Yellen will inherit a global trading system battered and destabilized by Mr. Trump’s aggressive approach to US trade policy. She will face a variety of decisions, including whether to continue Mr. Trump’s escalating sanctions against Chinese companies and officials, or his restrictions on the presence of Chinese companies in U.S. stock markets and in pension portfolios.
Ms. Yellen is known for her steadfast support for open trade and the international trading system, although she has not shied away from criticizing China’s trading practices.
Like many members of Mr. Biden’s team, Ms. Yellen seems to agree that many of the problems often attributed to trade policy actually stem from the reluctance of U.S. officials to use domestic policies to support workers suffering the worst. effects of globalization.
Ms Yellen attributed globalization and trade liberalization to increased growth and reduced poverty around the world, but she also said these trends fueled inequality and the rise of populism, leading to a backlash against US business practices. She expressed concern over the country’s withdrawal from an international leadership role under Mr. Trump’s leadership and support for the World Trade Organization.
The presidential transition
Ms. Yellen was the president of the American Economic Association at its annual meeting in January, which drew thousands of economists to San Diego. She organized the conference schedule, she said in an interview, to focus heavily on sessions outlining the benefits of free trade and immigration for national economies and the world – a very strong position. contradiction with the Trump administration. “I organized the program and I think it’s no accident that you see it,” she says. “I think it’s very important.”
Like many economists, Ms. Yellen criticized Mr. Trump’s emphasis on bilateral trade deficits, described his tariffs on China as a tax on American consumers, and warned that his trade wars posed a recession risk for the country. American economy.
She also expressed skepticism about Mr. Trump’s possible trade deal with China, saying he left high tariffs in place that did not help American manufacturers and did not resolve an “embarrassing clash. With China on technologies such as 5G and artificial intelligence.
“We have very difficult issues ahead,” Ms. Yellen said in a speech in Hong Kong in January, in which she urged countries to remain open to the “synergies” of sharing and exchanging technology through the world.
But Ms. Yellen also acknowledged that the United States has “real problems” and “many valid concerns” in its trade relations with China, in particular China’s violation of American intellectual property, its subsidies to state-owned enterprises. and its compartmentalization. technological markets crucial to foreign competition.
As with many moderates in Mr. Biden’s administration, any policy recommendations Ms. Yellen makes on China will likely be constrained by Beijing’s increasingly aggressive and authoritarian behavior, as well as China’s harsh feelings. among Democrats and Republicans in Washington.
From her perch at the Brookings Institution, Yellen expressed concern over the Trump administration’s regulatory cuts, including those made at the Fed.
Ms Yellen said this spring that the 2008 crisis showed that the Fed should be proactive in suspending bank payments.
“We have learned that we have left far too much money at the door in this crisis,” she said in an interview in April. “We don’t know where this is going. It is truly a final event and a great threat to the country.
In the months that followed, Fed officials prevented banks from repurchasing their own shares, but only limited dividends.
But it’s not just the banks that worries her. She also identified money market mutual funds as a source of financial system instability. And, speaking on a Brookings sign in June, Ms Yellen said the coronavirus exposed lingering vulnerabilities in the financial system, which were suffocating in March before the Fed stepped in to calm it down.
“The pandemic has shown that the risks are very real and serious” to a popular financial position that hedge funds had amassed and then tried to relax when trade tightened in March, exacerbating market volatility. She also pointed to money market funds, where investors put their savings to earn more return than bank accounts offer, and the practice of lending to borrowers who are already in debt – called leveraged loans – as points. weak recognized but not resolved.
“These were things that were known; they haven’t been addressed, ”she said.
As Secretary of the Treasury, Ms. Yellen would head the Financial Stability Oversight Board, a group created after the 2008 crisis to monitor and respond to financial stability risks. This would give it considerable leeway to direct the regulations to the areas of concern it has identified.
In her post-Fed years, Ms. Yellen also focused on the risks of climate change. She chaired the Group of 30 working group on climate change and finance, which this year released a report urging governments, regulators and financial firms to take action that would sharply reduce carbon emissions.
“Carbon prices are expected to gradually increase over time to provide incentives for businesses and accelerate the net zero crossing,” Ms. Yellen said when the report was released.
His place at the head of the supervisory board will give him an important podium to talk about green finance. A report sponsored by the Commodity Futures Trading Commission this year urged the board to start focusing more concretely on climate risk.