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Janet L. Yellen, Secretary of the Treasury, has given only a few interviews since taking office about a month ago. Business leaders and investors cling to her every word, trying to guess how she and the Biden administration will run politics and how that will affect the economy and the markets. Ms Yellen, the former chairman of the Federal Reserve, is adept at staying on the message, but in an interview with me for the DealBook DC Policy Project, she hinted at certain policy priorities in her generally underestimated way.

Here are the highlights of what she said on some of the bigger issues – and my take on what that means.

When I asked Ms. Yellen what metric she would use to measure success in her new role, she made it clear that one problem surpassed all others: “A simple problem would be how long it will take us to reduce the problem. unemployment at the levels we enjoyed before the crisis, ”she said.

But don’t just look at the overall unemployment rate as an indicator. She uses an even stricter measure, which means she is likely to push for stimulus and other policies to push the economy beyond what one would expect. “Remember, the unemployment rate was at a 50-year low of 3.5%,” she said of the situation before the pandemic, comparing it to the current rate of 6.3% . “Really, though, if you count in addition to the nearly 10 million registered unemployed, if you add the four million who have dropped out of the labor market – for health reasons, because they have caregiving responsibilities. children – and two million people who have reduced their working hours or their wages, we are looking for an unemployment rate that is really close to 10%. “

How much is too much? This is the key question economists are debating as public debt soars, with some arguing that the old fiscal rules no longer apply. Ms Yellen, who was known for her accommodating leanings at the head of the Fed, doesn’t go that far. However, she argued that “traditional metrics” like the debt-to-GDP ratio are not the right things to look at in judging whether the country can afford more debt. “I remember that in 2007 the debt to GDP ratio before the financial crisis was 35%. And now it’s around 100, ”she says.

A more important measure, for her, is the cost of debt. “Just look at, for example, interest payments on debt as a percentage of GDP. Currently, they are below 2%, ”she said. “And it’s not higher than in 2007. So I think we have more fiscal space than before because of the interest rate environment. And I think we should use it now to deal with an emergency.

Ms Yellen said she was not providing a wealth tax to Senator Elizabeth Warren – “this is something that has very difficult implementation issues” – but in her most direct comments to date on On the subject, the Treasury Secretary said she was ready to seek to end the tax treatment that could have an equally profound effect. She plans to explore the possibility of ending a rule that allows assets to be transferred after death at their present value – or “increased” – without paying tax on gains accrued over time. The Center on Budget and Policy Priorities analyzed the numbers and estimated that unrealized capital gains account for up to 55% of assets in estates worth more than $ 100 million.

Private equity executives should also take note: she has hinted that she wants to look at “carried interest,” which allows some financiers to pay taxes on their income at the capital gains rate like s’ they had invested the money themselves.

Ms Yellen seemed less convinced by a financial transaction tax, which some say could raise $ 80 billion a year by imposing a small charge on each transaction, which would hit Wall Street mostly. “It might deter speculation, but it could also have negative effects,” she said.

Ms. Yellen dubbed her “Buyer’s Attention” message to Bitcoin investors. “I don’t think Bitcoin – I’ve said this before – is widely used as a transaction mechanism. As far as it is used, I fear that it is often for illicit financing, ”she said. “It’s an extremely inefficient way of doing business. And the amount of energy consumed to process these transactions is staggering. But it’s a highly speculative asset, and I think people should be wary. It can be extremely volatile and I am concerned about the potential losses that investors might incur. “

Ms Yellen is more interested in the prospect of the Federal Reserve being able to develop a so-called digital dollar, the first time she appears to have made public comments on that prospect. Crypto supporters may interpret this as an endorsement of the idea – Ms Yellen’s predecessor Steven Mnuchin seemed less interested in this one – which shares some of the technologies behind Bitcoin and other crypto- currencies. “It makes sense for central banks to look into the matter,” she said. “We have a financial inclusion problem. Too many Americans really don’t have access to easy payment systems and bank accounts, and I think that’s something a digital dollar – a central bank digital currency – could help. I think it could lead to faster, safer and cheaper payments. “

There are a number of “issues” to be addressed before central banks embark on digital currencies, she said. “What would be the impact on the banking system? Would that cause a huge flow of deposits out of banks to the Fed? Would the Fed deal with retail customers or try to do so at a wholesale level? Are there financial stability issues? How would we deal with the problems of money laundering and illicit financing? There is a lot to consider here, but it’s definitely worth considering.

Ms Yellen said tackling climate change is part of a broader Treasury mandate, as is the case with other departments of President Biden. One of the most fascinating comments she made was about the role of financial institutions and the risk they face in investing or lending to companies exposed to climate change. “There is now a new movement towards stress testing of financial institutions,” she said, acknowledging that financial firms face risks from climate change, in terms of “physical risks and also risks due to price changes, blocked assets, etc.

It’s “encouraging” that the Fed is looking into this, she said, “and I think it’s something we can maybe discuss and facilitate at Treasury. She added: “It is not envisioned that these tests would have the same status in terms of limiting payments and capital requirements, but I think they would be revealing to both regulators and the companies themselves.


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