An introduction to a Treasure directed by Janet Yellen



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The Biden administration hopes to act quickly to confirm Janet Yellen as the 78th Secretary of the Treasury.

The Senate Finance Committee is expected to vote on the appointment of the former Federal Reserve chairman on Friday morning, which should set up a final vote on the Senate floor next week.

The markets will be closely tuned in to Yellen’s first steps as Secretary of the Treasury.

If confirmed, Yellen’s immediate task will be to sell Congress the Biden administration’s $ 1.9 trillion stimulus package.

Yellen will also have its hands full on a number of other issues of importance to the markets, ranging from financial regulatory issues to international affairs.

Here’s a look at the policies a Yellen-led treasury would pursue:

‘Big’ on the stimulus

During his nomination hearing on Tuesday, Yellen stressed the specific need to go “big” on the stimulus.

As proposed, the Biden plan on COVID-19 relief would include, among other things, additional stimulus checks of $ 1,400 and an additional $ 400 per week in UI benefits. Yellen said the best value for money would be the bill’s public health spending to boost the vaccination process, in addition to relieving small businesses.

Yellen also stressed the need to help state and local governments overcome their huge budget deficits.

With a Democratic majority in the Senate and House, the Biden administration has more legislative space to pass a bigger package than if the Democrats lose the battle for Georgia’s two Senate seats.

According to UBS Global Wealth Management, the increased probabilities of larger stimulus “make equity valuations more reasonable”, especially in a low interest rate environment.

“We are seeing exciting opportunities among more cyclical companies, sectors and markets,” UBS’s Mark Haefele wrote on Thursday.

Higher taxes

The Biden administration’s tax policy framework includes a higher tax for those earning more than $ 400,000 a year with a corporate tax rate hike to 28% (from Trump’s tax cuts in 2017 which lowered the rate from 35% to 21%).

Yellen said she would like to work with other countries on a globally coordinated approach to corporate tax, adding that she did not want to hurt the competitiveness of U.S. businesses.

But she stressed that her top priority is a tax base that supports investment in “things that will create good jobs,” such as infrastructure, manufacturing and research and development.

“We have to think of taxes in the context of the package that aims to do these things. And to the extent that funding is needed for these very valuable investments, I think it should come in a fair way.

US-China trade relations

Yellen said China was “our most important strategic competitor,” but acknowledged concerns about intellectual property theft and forced technology transfers, issues at the heart of the US-China trade war between the former president. Donald Trump and Chinese President Xi Jinping.

Yellen has widely mentioned that she would rather deal with countries together rather than unilaterally, hinting that she would shy away from the Trump administration’s preference not to participate in group trade agreements like the Trans-Pacific Partnership.

Yellen added that in cases where countries break the rules, “sanctions are a tool that can be very effective” – ​​but she was vague on how she might use that tool.

Fed policy

Yellen will also likely draw on his in-depth knowledge of monetary policy by working with his former colleague Jerome Powell, who currently heads the Fed.

Janet Yellen, candidate for President-elect Joe Bidens for Secretary of the Treasury, remotely participates in a hearing, as she participates in a Senate Finance Committee hearing in Washington DC, January 19, 2021. - Biden , who will take office on January 20, 2021, has proposed a $ 1.9 trillion bailout to help struggling businesses and families amid the pandemic, and Yellen would be tasked with pushing this bill through. massive by a Congress where some are wary of the skyrocketing budget deficit.  (Photo by Anna Moneymaker / POOL / AFP) (Photo by ANNA MONEYMAKER / POOL / AFP via Getty Images)
Janet Yellen, candidate for President-elect Joe Bidens for Secretary of the Treasury, remotely participates in a hearing, as she participates in a Senate Finance Committee hearing in Washington DC, January 19, 2021. – Biden , who will take office on January 20, 2021, has proposed a $ 1.9 trillion bailout to help struggling businesses and families amid the pandemic, and Yellen would be tasked with pushing this bill through. massive by a Congress where some are wary of the skyrocketing budget deficit. (Photo by Anna Moneymaker / POOL / AFP) (Photo by ANNA MONEYMAKER / POOL / AFP via Getty Images)

Alongside Trump’s Treasury Secretary Steven Mnuchin, Powell helped prevent a total financial crisis by using funds from the Coronavirus Aid, Relief, and Economic Security Act (CARES) to support markets ranging from corporate debt municipal bonds. But several of those programs expired late last year and legal questions surround Yellen’s ability to reopen them.

“Yellen and Powell advocated continued strong support for the economy, which would remove recent friction between Treasury Secretary Mnuchin and the Fed over the continuation of Fed lending programs,” Raymond analyst wrote. James Ed Mills when Yellen was appointed in November. .

Yellen also clarified that the Fed’s low interest rates are one reason the Fed can afford to spend now.

“The weight of interest on debt as a percentage of GDP is no higher today than it was before the 2008 financial crisis,” Yellen said Tuesday.

Financial regulations

The Biden administration completes its agency appointments, with Gary Gensler expected to head the US Securities and Exchange Commission (SEC) and Rohit Chopra to head the Consumer Financial Protection Bureau (CSFB).

Isaac Boltansky of Compass Point wrote on Monday that the appointments hinted at a regulatory agenda with a “significant ramp in monitoring, enforcement and regulatory activities.”

But in the banking space, Yellen told Congress she was “excited to see” the capital levels of banks during the pandemic, suggesting she was generally comfortable with regulatory parameters.

The Trump administration has implemented some cancellations of the Dodd-Frank framework of financial regulation put in place by the Obama administration after the financial crisis. And even though the Biden administration planned to appoint Michael Barr, one of Dodd-Frank’s architects, as key banking regulator, Sherrod Brown, the top Democrat on the Senate Banking Committee, suggested he would not work not to overturn those Trump regulations. cancellations.

For her part, Yellen may be focusing on financial policies focused on climate change, which she described Tuesday as “an existential threat.” Yellen said she plans to appoint someone “at a very high level” within the Treasury to focus specifically on the risks of the financial system and the tax benefits of climate change. The Federal Reserve has already called for more transparency on the part of financial companies on climate risks.

Digital currencies

In 2018, Yellen said she was “not a fan” of the plethora of cryptocurrencies. But Yellen could soften its tone as the Fed explores the development of its own stablecoin.

In recent years, the Fed has been experimenting with digital dollars and, by extension, the use of a digital currency issued by the central bank. Fed officials have made it clear that while they are experimenting with the technology, they have not made a commitment to launch one.

Yet Yellen’s remarks to Congress do not suggest a warm view of cryptocurrencies.

“Cryptocurrencies are of particular concern, many are used, at least in a transactional sense, for illicit financing,” Yellen said Tuesday. “I think we really need to look at how far we can reduce their use and make sure that the fight against money laundering does not happen through these channels.”

Brian Cheung is a reporter covering Fed, Economics, and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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