Biden picks Janet Yellen for Treasury secretary – With insights from The Wall Street Journal

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Biden Picks Janet Yellen for Treasury Secretary

Former Fed chief, if confirmed by Senate, would be first woman to hold job.

By Nick Timiraos, Kate Davidson and Ken Thomas  The Wall Street Journal

Updated Nov. 23, 2020 9:13 pm ET

President-elect Joe Biden plans to nominate former Federal Reserve Chairwoman Janet Yellen, an economist at the forefront of policy-making for three decades, to become the next Treasury secretary, according to people familiar with the decision.

If confirmed by the Senate, Ms. Yellen would become the first woman to hold the job. Mr. Biden’s selection positions the 74-year-old labor economist to lead his administration’s efforts to further the recovery from the destruction caused by the coronavirus pandemic and shutdowns.

Ms. Yellen, who was the first woman to lead the Fed, would become the first person to have headed the Treasury, the central bank and the White House Council of Economic Advisers.

Ms. Yellen declined to comment on Monday.

Separately, Mr. Biden’s transition team said he would nominate Alejandro Mayorkas to lead the Department of Homeland Security and Avril Haines as director of national intelligence. Both are former Obama administration aides. John Kerry, who was secretary of state under President Barack Obama, will serve as special presidential envoy for climate change.

Mr. Biden’s economic team is set to confront a challenging outlook, with millions of people still out of work and job growth slowing after a sharp bounceback when businesses reopened in May, June and July. Economists at JPMorgan Chase & Co. said last week they expect the U.S. economy to contract slightly in the first quarter of 2021 due to rising virus infections.

While the Obama administration also faced a challenging landscape before taking office in January 2009, Democrats then enjoyed large House and Senate majorities that created far fewer political constraints to pursuing their preferred course of action—something Mr. Biden won’t have even if Democrats deny Republicans a Senate majority by winning two Georgia runoff elections in early January.

Ms. Yellen has said recently the recovery will be uneven and lackluster if Congress doesn’t spend more to fight unemployment and keep small businesses afloat. “There is a huge amount of suffering out there. The economy needs the spending,” Ms. Yellen said in a Sept. 28 interview.

She is viewed by Biden transition officials as a credible authority on the dangers of prematurely withdrawing government stimulus and as someone who could collaborate closely with the Fed and executive-branch agencies to engineer more support if Congress is reluctant to take additional action.

Ms. Yellen is an “excellent choice for Treasury secretary,” said Gary Cohn, President Trump’s former top economic adviser, in a statement. “Having had the opportunity to work with then-Chair Yellen, I have no doubt she will be the steady hand we need to promote an economy that works for everyone, especially during these difficult times.”

A formal announcement of Ms. Yellen’s selection isn’t expected to occur before Nov. 30. On Monday, a Biden transition official said his office would announce the first few members of his economic team early next week.

Sen. Pat Toomey (R., Pa.), a member of the Senate Finance Committee, said Monday night he looked forward to considering her nomination. “While Dr. Yellen and I had our fair share of disagreements during her tenure as chair of the Federal Reserve, I have no doubts about her integrity or technical expertise,” he said.

Mr. Toomey thought the Fed under Ms. Yellen kept policy too accommodative for too long.

Ms. Yellen was confirmed with bipartisan support as a Fed chairwoman in 2014 and as vice chairwoman in 2010. She received 11 Republican votes in her 2014 confirmation, including the backing of three sitting Republican senators: Richard Burr of North Carolina, Susan Collins of Maine and Lisa Murkowski of Alaska.

Many economists today fault a bipartisan impulse to curb spending over debt concerns in the years following the 2008 financial crisis for hampering that recovery.

“This is not a good time to have fiscal policy switch from being accommodative to creating a drag,” Ms. Yellen said. “That’s what happened [last decade], and it retarded the recovery.” She said low inflation has increased the need for and lowered the risks of aggressive monetary and fiscal policy.

Ms. Yellen has extensive relationships with and is highly regarded by foreign finance ministers and central bankers, an important asset as the Biden administration seeks to strengthen ties with allies.

Mr. Biden, a Democrat, said last week that his pick would be broadly accepted by both the liberal and moderate wings of the Democratic Party, which many observers immediately saw as a sign that he had selected Ms. Yellen.

At the Fed, she pushed colleagues to focus more on the central bank’s mandate to promote a strong labor market; the congressional mandate also calls for maintaining stable inflation. In speeches, she drew attention to the costs of unevenly distributed growth and government policies that would boost the participation of women in the workforce.

That emphasis occasionally drew criticism from some Republican lawmakers who said such concerns were beyond the central bank’s remit. But it also ushered in a broader shift at the Fed, which under Chairman Jerome Powell has called even more attention to those issues and enshrined them in the Fed’s policy framework this past August—drawing no such criticism.

“She’s a big believer in those concerns. The bad news is that the Fed can’t do very much about them,” said Alan Blinder, a former Fed vice chairman who served alongside Ms. Yellen. “But the executive branch can do a lot. A Treasury secretary, as a close adviser to the president, can have much more influence over those issues.”

Ms. Yellen served as president of the San Francisco Fed from 2004 to 2010 during the housing boom and bust, the 2008 financial crisis, a severe recession and slow recovery. She served as Fed vice chairwoman from 2010 to 2014, alongside then-Chairman Ben Bernanke, as the central bank held short-term interest rates near zero to support job growth.

Mr. Obama selected her to lead the Fed from 2014 to 2018, a period in which she navigated to a middle ground between colleagues who were eager to start lifting interest rates and those who, like herself, were reluctant to move more aggressively despite steady growth. She chose to leave rates near zero until late 2015 and then to lift them very slowly to help spur employment gains.

“She’s well liked, but she gets her way,” said Julia Coronado, founder of economic-advisory firm MacroPolicy Perspectives. “One of her underappreciated talents is the ability to drive a consensus in pretty convincing ways. She got stuff done.”

Mr. Trump, a Republican, considered nominating her for a second term but instead chose Mr. Powell, then Fed governor who was a former private-equity executive, to succeed her.

Ms. Yellen previously had served as a Fed governor from 1994 to 1997. She chaired the White House Council of Economic Advisers in the late 1990s. Former colleagues describe her as exacting and detail-oriented. At Fed policy meetings, she was courteous, serious and meticulously prepared.

“If she becomes secretary, when she goes into a room with finance ministers from other countries, she’s going to be the best prepared person in the room—probably the smartest person, too, but certainly the best prepared,” said Mr. Blinder, who remains close to Ms. Yellen and is a professor of economics at Princeton University.

The Treasury secretary, who is fifth in the presidential line of succession, manages a bureaucracy that handles everything from tax collection to public-debt management and the implementation of international sanctions.

The most pressing need for the new Treasury secretary will be to oversee economic recovery efforts. Ms. Yellen will be at the center of big decisions on Mr. Biden’s tax and spending proposals, the U.S. relationship with China, the future of mortgage-finance giants Fannie Mae and Freddie Mac and efforts to bolster the resilience of the Treasury market after the pandemic shook core funding markets in March.

Since leaving the Fed in 2018, Ms. Yellen has made donations to Democratic congressional candidates and campaign committees totaling $44,000, plus $2,800 to Mr. Biden’s campaign in August, according to the Center for Responsive Politics.

Ms. Yellen has spoken often over the last year on issues that could define her tenure at the Treasury. She has supported a carbon tax as the most effective way to reduce greenhouse-gas emissions and tackle climate change.

Speaking in Hong Kong in January, Ms. Yellen said longstanding issues with Beijing that weren’t addressed by the Trump administration’s phase one trade deal, such as subsidies to state-owned enterprises and competition for new technologies with significant national-security implications, threatened to pull the world into two competing spheres. “We have very difficult issues that lie ahead,” she said.

On regulation, she has strongly defended efforts to improve bank supervision following the 2008 financial crisis. Earlier this year she expressed disappointment that the 2010 Dodd-Frank Act focused on the largest banks and didn’t give regulators better tools to address risks that threatened the broader financial system, such as increased indebtedness by nonfinancial corporations.

“I was very frustrated we did not do more to deal with this risk,” she said in a March interview. “The law actually didn’t provide [regulators] with a good basis to do so.”

One of Ms. Yellen’s first decisions could be to decide whether to reactivate and potentially revamp, with Mr. Powell’s approval, a series of lending backstops the Fed and Treasury launched when the coronavirus pandemic convulsed markets this spring.

In April, Ms. Yellen applauded those backstops and defended the central bank against criticism that it was ceding its independence to the Treasury.

“It would be wrong-minded for the Fed to spend all of its time worrying about how—in some future world, by doing what they were set up to do—they would lose some autonomy,” she said in an April interview.

The parameters of one of those programs—to buy loans extended to small- and midsize businesses—might be “insufficiently generous,” she said. The Main Street Lending Program has extended just $4 billion in credit to more than 400 companies in its first four months of operation.

Treasury Secretary Steven Mnuchin decided last week that the programs would cease the purchase of loans or assets at the end of the year, declining an extension that had been sought by the Fed. The Biden transition team criticized Mr. Mnuchin’s decision.

While Ms. Yellen has argued strongly for more deficit-financed government spending since the pandemic devastated the U.S. economy, she said last year that federal budget deficits were on an unsustainable path.

In one speech last year to a housing trade group, she warned higher taxes might not be enough to put programs such as Social Security and Medicare on solid footing, warning of painful trade-offs. “This is root canal economics,” she said.

Ms. Yellen has written on a variety of macroeconomic issues, while specializing in the causes, mechanisms and implications of unemployment.

“These are not just statistics to me,” she said in a February 2013 speech to the AFL-CIO labor union. “We know that long-term unemployment is devastating to workers and their families.”

A native of Brooklyn, N.Y., Ms. Yellen graduated from Brown University with a degree in economics, earned her Ph.D. in economics from Yale University and is professor emeritus at the University of California at Berkeley. She is married to Nobel Prize-winning economist and frequent co-author George Akerlof, and they have one son.

At Yale, she studied with the late Nobel Prize winner James Tobin, an intellectual heir to the Depression-era economist John Maynard Keynes, who saw a central role for government in combating economic downturns.

A Wall Street Journal analysis of more than 700 predictions that Fed officials made between 2009 and 2012 showed Ms. Yellen had the best record. She warned others that the recovery would be slow and played down the threat of inflation.

Ms. Yellen advocated forcefully for more stimulus during this period. At a December 2012 meeting, some of her colleagues worried that the Fed was inviting political risks with its purchases of Treasury and mortgage-backed securities, which were intended to drive down long-term rates after the Fed had pinned short-term rates near zero.

Ms. Yellen told her colleagues they should be more concerned about repeating mistakes made over more than a decade by Japan, which had been mired in deflation, by pulling back on stimulus prematurely.

“Prolonged failure to meet the central bank’s mandate can be just as damaging to its reputation” as losses on asset purchases, she said, according to transcripts of the meeting.

Write to Nick Timiraos at [email protected], Kate Davidson at [email protected] and Ken Thomas at [email protected]

Appeared in the November 24, 2020, print edition as ‘Biden Chooses Yellen to Lead U.S. Treasury.’