Janet Yellen, the former chair of the Federal Reserve and President-elect Joe Biden’s pick to lead the Treasury Department, faces a huge task ahead.
Not only does Yellen have to shepherd efforts to bring the US economy back from its sharpest contraction on record — she must also convince Congress to get on board with Biden’s $1.9 trillion stimulus package, as some lawmakers balk at the price tag.
Yellen will make her first big pitch on Tuesday when she testifies before the Senate Finance Committee.
Janet Yellen
“When economists look back on the pandemic, I expect they’ll conclude that Congress’ actions averted a lot of suffering,” Yellen is set to tell lawmakers, according to written testimony obtained by CNN Business. “But more must be done. Economists don’t always agree, but I think there is a consensus now:
“Without further action, we risk a longer, more painful recession now — and long-term scarring of the economy later.”
Wall Street expects that Congress will back the Biden administration in passing another sizable relief bill, with millions of Americans still unemployed and new jobless claims on the rise.
Economists: Job growth to be slow even if $1.9T relief package boosts economy
But scale could be a major sticking point, with Biden’s team pushing for additional $1,400 stimulus checks, aid for state and local governments and a wave of funding for Covid-19 vaccination and testing.
One of Yellen’s biggest challenges will be persuading more conservative lawmakers that the benefits of adding to America’s $27 trillion debt load will outweigh the costs.
“Neither the President-elect, nor I, propose this relief package without an appreciation for the country’s debt burden,” Yellen’s prepared testimony reads. “But right now, with interest rates at historic lows, the smartest thing we can do is act big.”
Yellen has a point: The United States can borrow for 10 years at roughly 1%, compared with about 3% when former President Barack Obama took office. But if interest rates were to rise, servicing the country’s debt load could become trickier.
Given Yellen’s background at the Fed, she’ll be able to speak to these issues — as well as any concerns about inflation triggered by additional spending — with authority. Investors will be listening.
“Expect lots of questions about debt sustainability and the role the Fed will likely play in that,” Deutsche Bank’s Jim Reid said in a note to clients Tuesday.
A personal note: Yellen, in her prepared remarks, also cites her “working class” background in Brooklyn, where her father, a doctor, used to treat people from the family’s basement.
“He was the kind of doctor who treated the whole patient,” her prepared remarks read. “He knew about their lives; about when they’d been fired or couldn’t pay. Those remain some of the clearest moments in my childhood.”
