Awaiting Yellen at US Treasury: Yet another daunting crisis

Photo: The Canadian Press

Janet Yellen is in line for another top economic policy job — just in time to confront yet another crisis.

Yellen, President-elect Joe Biden's apparent choice for treasury secretary, served on the Federal Reserve's policymaking committee during the 2008-2009 financial crisis that nearly toppled the banking system.

She became Fed chair in 2014 when the economy was still recovering from the devastating Great Recession. In the late 1990s, she was President Bill Clinton's top economic adviser during the Asian financial crisis.

And now, according to a person familiar with Biden's transition plans, she has been chosen to lead Treasury with the economy in the grip of a surging viral epidemic. The spike in virus cases is intensifying pressure on companies and individuals, with fear growing that the economy could suffer a “double-dip” recession as states and cities reimpose restrictions on businesses.

Yet many longtime observers of the U.S. economy see Yellen as ideally suited for the role.

“She is extraordinarily talented,” said Diane Swonk, chief economist at auditing firm Grant Thornton. “She is the right person at this challenging time. She has worked every crisis."

If confirmed, Yellen would become the first woman to lead the Treasury Department in its nearly 232 years. She would inherit an economy with still-high unemployment, escalating threats to small businesses and signs that consumers are retrenching as the worsening pandemic restricts or discourages spending.

Most economists say that the distribution of an effective vaccine will likely reinvigorate growth next year. Yet they warn that any sustained recovery will also hinge on whether Congress can agree soon on a sizable aid package to carry the economy through what Biden has said will be a “dark winter” with the pandemic still out of control.

Negotiations on additional government spending, though, have been stuck in Congress for months.

Yellen has favoured further stimulus, including more money for state and local governments, which she has said need “substantial support” to avoid further job cuts. Rescue aid for states has been a major sticking point in congressional negotiations.

Nathan Sheets, chief economist at PGIM Fixed Income and a former senior Fed and Treasury official, said that Yellen could effectively use the “bully pulpit” during what are likely to be difficult negotiations with Senate Republicans.

"Yellen," Sheets said, “has a unique ability ... to communicate about economics and economic policies in terms that resonate with individuals.”

She will also have the opportunity to work with Fed Chair Jerome Powell, with whom Yellen enjoys a close relationship after having worked together at the Fed, to restart several emergency lending programs. Treasury Secretary Steven Mnuchin said last week that the programs will expire, as scheduled, at the end of this year — a decision that critics warn will unnecessarily hamstring the Fed.

Powell objected to the Treasury's move, though he agreed to return money that Congress had authorized to backstop the lending.

The most likely credit programs to be renewed, economists say, would be one that supported states and cities and a second, the Main Street Lending program, that targeted small and mid-sized businesses.

Neither program has made very many loans. But just the understanding that those backstops existed lent confidence to the financial markets. Economists say Yellen could allow Powell to offer more generous terms to increase the programs' use.

The 74-year-old Yellen, long a path-breaking figure in the male-dominated economics field, was the first woman to serve as Fed chair, from 2014 to 2018.

“She is an icon,” said Stephanie Aaronson, a vice-president at the Brookings Institution and a former top economist at the Fed. “Having a female chair meant a lot to a lot of people.”

Yellen was known as a highly prepared, sometimes demanding but down-to-earth manager who was popular with the Fed's staff.

“I have never met anyone who has worked for or with Janet who has an unkind word to say about her," said Claudia Sahm, a former Fed economist. "She is the kind of person who uplifts her staff.”