What Janet Yellen’s Appointment As US Treasury Secretary Would Mean For Markets

• President-elect Joe Biden plans to appoint Janet Yellen as head of the US Treasury Department.
• His appointment is particularly noteworthy at a time when monetary and fiscal policy will determine what the US economy will look like in the coming years.
• Investors appear to have confidence in Biden’s choice for the post of Treasury Secretary, as evidenced by the record rally on Wall Street this week.
• Here are the main implications for the markets.
• Visit the Business Insider homepage for more stories.

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Janet Yellen is the apparent selection of President-elect Joe Biden as Secretary of the Treasury.

If her appointment is confirmed by the Senate, she would be the first woman to head the Federal Reserve, the White House Council of Economic Advisers and the Treasury Department.

His appointment is a welcome choice for investors.

This shows that Biden is aiming for a centrist agenda at a moderately liberal economic agenda, according to economists at Deutsche Bank. “At Yellen, he brought in a pragmatist, a skilled economist and a seasoned financial and regulatory decision maker,” they said.

The markets seem to have an air of confidence in Yellen, as evidenced by the record rally on Wall Street after the announcement of his selection as Secretary of the Treasury. The dollar index jumped 0.4% to 92.54.

The Treasury market, however, remained relatively insulated from the announcement. Yellen has been a familiar figure among bond traders since his time at the helm of the Fed. Yields on the benchmark 10-year note edged up to around 0.88% from this week’s low of 0.82%, but are little changed from where they were a week ago.

The bond market, like stocks and currencies, is more subject to investor confidence in the deployment of a vaccine and its impact on the economy in general. Here are some implications of Yellen’s appointment for financial markets.

Accommodative monetary policy

She is seen as someone who will coordinate well with the Federal Reserve and be pro-market, Deutsche Bank said.

“People have known Yellen since her tenure as Fed chairman, and she is relatively accommodating, two advantages for the markets,” said David Schneider, financial advisor at Schneider Wealth Strategies.

“His experience both during the Asian financial crisis and the global financial crisis make him an ideal choice to overcome the challenges we face in overcoming the COVID-19 downturn,” he said.

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Reopen or launch new emergency loan programs

Given her history as chair of the Federal Open Markets Committee, the U.S. economy is expected to experience close coordination of fiscal and monetary policy, according to Scott Ruesterholz, portfolio manager at Insight Investment.

This coordination was a key part of the initial policy response under the CARES Act, though it has faltered recently, most notably with Secretary Steve Mnuchin’s decision not to extend the Fed’s emergency lending programs.

As Secretary of the Treasury, Yellen will likely seek to reopen these facilities or launch new ones to help damaged parts of the U.S. economy, Ruesterholz said.

“We will likely see even closer coordination of fiscal and monetary policy in 2021 than in 2020, which can be good for growth prospects and the financial market,” he noted.

Compared to other finalists, including Fed Governor Lael Brainard, Yellen has more expertise in monetary policy and national economic affairs than in international trade and diplomacy.

She is also likely to seek federal support for small businesses, which could allow businesses to take out a second paycheck protection program loan and target assistance to hard-hit sectors like airlines, said. Deutsche Bank economists Peter Hooper and Matthew Luzzetti.

Dollar stability

Yellen fully supports Biden’s goal of containing the virus first to get the economy back on track.

The Fed intervenes in the currency markets if necessary, but relies on the Treasury to kick things off. A Yellen-led Treasury will not order the Fed to intervene to push the dollar one way or another, but will coordinate to intervene to smooth markets as needed in the unusual event that they become “messy.” or very volatile, said Hooper and Luzzetti. “In short, we can expect dollar policy to return to an even level below Yellen.”

Another strategist believes she will navigate the nomination process because she is a popular figure and has garnered bipartisan support for her other positions in the past, including that of central bank chief.

His appointment will likely strengthen the hand-in-hand relationship between the Treasury and the Federal Reserve. “The Treasury and Fed can be expected to continue with their expansionary policies, although a Republican Senate will likely continue to resist tax measures it deems too important,” said James Solloway, chief market strategist at SEI Investment Management.

But critics may have a problem with his lack of private sector experience or leadership.

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