Janet Yellen, 2021 Treasury Secretary

Janet Yellen

With a new administration in place, focus now is on cabinet picks proposed by President Biden. Janet Yellen has already begun the confirmation process for Treasury Secretary and recently met with legislators to outline her views.

One can assume that her positions on interventionist actions regarding economic issues will continue as she becomes Treasury Secretary. That much was evident during her first confirmation hearings.

A New Path

In particular, she seems very supportive of additional stimulus spending which is considered by the administration to be an important priority. She also did not argue against higher taxes as long as it was coordinated with other economies. Of course, this is easier said than done as coordinated global tax policy has been virtually impossible in the past.

CNBC posted an excellent article on five takeaways from her confirmation hearing. Excerpts are provided below.

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1. Higher taxes are coming, but not now

Yellen characterized President-elect Joe Biden being in favor of some tax increases on wealthy Americans and corporations to fund an ambitious domestic agenda that includes pulling the country through the coronavirus pandemic and, eventually, avoiding the “race to the bottom” among global economies when it comes to corporate taxes. 

“The focus right now is on providing relief and helping families keep a roof over their heads and food on the table and not raising taxes,” she said. With Biden’s spending plans “we need to think about taxes in the context of a package that aims to do those things,” Yellen said.

2. ‘Fiscal sanity,’ but also not now

Facing multiple questions about the nation’s tattered finances, Yellen said there will come a time to talk about debt and deficits, but not until the economy has recovered from the pandemic. The U.S. is currently carrying a $27.7 trillion debt load after ending fiscal 2020 with a more than $3.1 trillion budget deficit.

“The Treasury secretary has to be a voice for fiscal sanity. I pledge to do that. Our finances need to be on a sustainable longer-run course,” she said. “Right now, short-term, I feel that we can afford what it takes to get the economy back on its feet to get us through the pandemic and to relieve the burdens that it’s placing on households and small businesses.”

3. Still tough on China 

Yellen said the new administration will remain focused on getting China to change its ways, though Biden likely will eschew the type of unilateral techniques that Trump employed, preferring instead to “work with our allies” in the effort.

“We need to take on China’s abusive, unfair and illegal practices,” she said. “China is undercutting American companies by dumping products, erecting trade barriers and giving illegal subsidies to corporations.”
“It’s been stealing intellectual property and engaging in practices that give it an unfair technological advantage, including forced technology transfers,” Yellen said. “These practices including low labor and environmental standards are practices that we are prepared to use the full array of our tools to address.”

4. Backing the buck

Yellen said the incoming regime wants a stable currency whose price should be determined by market forces. “The United States does not seek a weaker currency to gain competitive advantage, and we should oppose attempts by other countries to do so,” she said. “The intentional targeting of exchange rates to gain commercial advantage is unacceptable.”

A footnote: Yellen’s critics while she was at the Fed said the central bank’s policies then undermined the dollar by keeping interest rates unnaturally low and through the nearly $4 trillion of bond-buying that Yellen helped oversee during her time.

5. More stimulus

Likely the first item on Yellen’s to-do list will be guiding the administration through another round of spending aimed at those impacted by the pandemic.
Biden last week proposed a $1.9 trillion plan that likely will get pared down but still will launch the third major fiscal volley at helping the U.S. through until the health care system can get vaccines widely enough distributed to achieve herd immunity.

“It will be my core focus if I’m confirmed as Treasury secretary to focus on the needs of American workers, those living in cities and rural areas, and to make sure that we have a competitive economy that offers good jobs and good wages,” she said.

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Source: Five key takeaways from Janet Yellen's Treasury confirmation hearing by Jeff Cox
https://www.cnbc.com/2021/01/19/five-key-takeaways-from-janet-yellens-treasury-confirmation-hearing.html 

Watching and Adjusting 

We will continue to monitor conditions and statements carefully from the new Treasury Secretary. We think it’s fair to say the United States is moving in a new direction and that will require attention on our part as investment managers.