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Biden Brings the Gang Back Together

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Biden put his mask on after introducing his choices for his foreign policy and national security team.

Biden’s expected nomination of Yellen as his Treasury secretary has generally been met with satisfaction from across the political spectrum, earning praise from business leaders and financiers as well as progressive policymakers.

Yellen served as chairwoman of the Federal Reserve during both the Obama and Trump administrations and would bring decades of experience to the job, as well as a reputation for seriousness and rigor. And, as our senior economics correspondent Neil Irwin writes in an analysis for The Upshot, “she’ll need every ounce of those qualities” as she seeks to pilot the economy out of a pandemic-driven recession.

Neil agreed to answer a few questions about Yellen and how she would be likely to approach the role.

We live in a time of deep partisan divides — which often means congressional gridlock. How much power would Yellen have as Treasury secretary to help prop up the economic recovery, with or without legislative help?

The biggest thing that Yellen will be able to do unilaterally as Treasury secretary is to take a different stance than her predecessor, Steven Mnuchin, on how restrictive to be in the design of joint Fed-Treasury lending programs. The Mnuchin Treasury has insisted that these programs be structured in ways that limit the government’s potential losses, but that has made them less effective and less appealing to businesses. The Yellen Treasury will probably take a different stance.

Beyond that, the Yellen Treasury will have some power at the margins to try to interpret tax and regulatory policies in ways that help the recovery, but will need a lot of help from Congress to really do the things that economists think are needed to help the economy get through the winter and to the period of widespread vaccine availability.

While the Fed is concerned with monetary policy — that is, the flow of available currency into the economy — the Treasury Department is more concerned with fiscal policy, which has to do with taxing and spending. Do we have a sense of how Yellen will approach fiscal matters?

Yellen is certainly comfortable with ambitious spending plans and high budget deficits in the near term as the nation tries to get out of the pandemic-induced downturn. And she strongly believes that there is a crucial role for the government to help workers. But she is more worried about long-term budget deficits than some on the left. She is worried about long-term entitlement spending and believes that public debt can weigh on growth.

In the near term, in crafting a pandemic response, that doesn’t matter, but in the medium term she could well find herself as a voice of fiscal restraint relative to the left flank of the Democratic Party.

While the administrations will change in January, Jerome Powell will remain as Fed chair. What is Yellen’s relationship with him like, and how much will he serve as a source of steadiness and continuity?

Yellen and Powell know each other very well and have a great deal of mutual respect. During the time she was in charge of the Fed, Powell was an influential Fed governor, an ally of Yellen on most issues and someone she entrusted with overseeing a lot of the nuts and bolts of the work the Fed carries out.

They may have some philosophical differences, but I think they will be very effective collaborators in trying to ensure that these different arms of the government are pushing toward the same goal.

And while Powell is politically more conservative than she is, they share a very pragmatic streak and a sense that getting the right answer for the American economy is more important than ideology.

As you write in your story, much of the Treasury secretary’s responsibility also has to do with foreign policy, and how the United States interacts with its trading partners. What do we know about the challenges Yellen will face, particularly when it comes to the United States’ rivalry with China — and do we have any idea how she will approach those challenges?

This is one of the areas where we know less about what Yellen will do. As Fed chair, you’re really playing second fiddle when it comes to setting the terms of the United States’ economic relationship with other major powers like China. It’s really the purview of the Treasury secretary, the secretary of state, and ultimately the president.

Today, the relationship between the U.S. and China is more inherently hostile than it was during Yellen’s Fed chairmanship. She’ll have power over some areas of that relationship that she has never really touched before, such as the Treasury body that controls whether foreign interests should be prohibited from owning companies in the United States on national security grounds. (This is the mechanism by which the Trump administration is forcing a divestment of TikTok.) Yellen knows the economic relationship as well as anybody, but even after covering her for a long time, I don’t know how she will approach the geostrategic aspects of things.

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