Getting some familiar hands on deck, President-elect Joe Biden returned to the Obama administration to staff his new administration, selecting 74-year-old former Federal Reserve Board Chairwoman Jane Yellen for Treasury Secretary. When you consider the hobbled U.S. economy, Yellen was the right pick for Biden, picking the former Fed Chairwoman over 58-year-old Fed Governor Laeil Brainard. Brainward was considered the front-runner until Yellen made herself available, bypassing Sen. Elizabeth Warren (D-Mass.) someone also named as a possible pick. But with the economy sputtering from Covid-19-related shutdowns and restrictions, Yellen was the right choice, going back to an old hand at helping the economy recover from the 2008 Financial Crisis the left the U.S. economy in a deep recession.
Current Fed Chairman 68-year-old Jay Powell should work hand-in-glove with Yellen working on today’s zero interest rate policy to help stimulate the economy. Yellen and Powell are big proponents of fiscal policy too, encouraging Congress to pass a new round of stimulus, something 77-year-old Senate Majority Leader Mitch McConnell (R-Ky.) has been reluctant to do because to the economy’s whopping federal budget deficits now running at $3.1 trillion with the national debt exceeding $27 trillion. If Powell and Yellen aren’t concerned about adding to the federal budget deficit or national debt, neither should McConnell, whose blocked 80-year-old House Speaker Nancy Pelosi’s (D-Calif.) $3.4 trillion Heroes Act that would provide new payroll protection, expanded unemployment benefits and, most importantly, help to cities and states.
Once Fed Chairman Ben Bernanke retired as Fed Chairman in 2010, Yellen took over at a time of economy growth, especially improvements in the stock market.
Yellen kept interest rates near zero until starting to raise them again in 2015. Yellen raised the Federal Funds Rates four times in 2015 before handing the baton to Powell. Powell kept things steady until raising rates in 2018, something 74-year-old President Donald Trump didn’t like, eventually slashing rates to zero again in 2019 before the Covid-19 crisis hit. Powell admitted that the Fed doesn’t have much experience dealing with global pandemics, something that confounds the Fed’s job of dealing with monetary policy. Bringing Yellen back to run Treasury was the right step for Biden, who inherits economic uncertainty due to the Covid-19 crisis.
Yellen’s been a big advocate for more fiscal stimulus something stuck in Congress. Yellen agrees with Powell that there’s only so much the Fed can do with monetary policy needing Congress to step up with more stimulus. “When unemployment is exceptionally high and inflation is historically low, as they both are now, the economy needs more fiscal spending to support hiring,” Yellen wrote Aug. 24 with Biden’s chief economist Jared Bernstein in the New York Times. Yellen thinks deficit spending is preferable than balancing the budget because employers need cash infusion to continue hiring, something essential to economy recovery. What’s lost in the shuffle, is that the economy was heading into recession before Covid-19 pushed it over the edge. It’s didn’t take long for the unemployment rate to spike to near record levels.
Trump warned during the campaign that a Biden presidency would plunge the economy into another Great Depression. But judging by whom Biden has put in place, he doesn’t intend to let the economy get much worse. Yellen has also said she supports tax hikes to help whittle away at federal deficits. But Yellen isn’t saying that it’s exactly the right time to raise taxes during a severe recession. She fits with Bernstein’s view that before raising taxes, Congress must pass more stimulus to drill down the unemployment rate to at least 5%, where it was before Trump got in office. Trump brought down the unemployment rate to 3.5%, a 50-year-low that was expected to increase U.S. Gross Domestic Product [GDP] to about 4%. Under Trump GPD growth hit 3% before Powell started hiking rates in 2018.
Yellen was the perfect pick to work with Powell and others at Biden’s Council of Economic Advisers to get the economy out of its current recession. Wall Street has done everything possible to keep generating capital in economic markets but needs some help from the Fed and Congress to keep things going. Yellen justified her rate hikes in 2015 saying the staved off more inflation. But today’s situation is different with Covid-19 still escalating before vaccines can be distributed to the public. When you consider Yellen was willing to serve a Treasury Secretary, Biden got the best of both worlds, someone with widespread respect and a good working relationship with Powell. Yellen becomes the first woman in U.S. history to lead the Treasury Department, yet another glass ceiling smashed as Biden continues his Cabinet picks.
