The Biden government hopes to proceed quickly with confirming Janet Yellen as the 78th Treasury secretary.
The Senate Finance Committee is expected to vote on the nomination of the former Federal Reserve chairman on Friday morning, probably establishing a final vote in the Senate floor next week.
Markets will be watching Yellen’s first steps as Treasury secretary.
If confirmed, Yellen’s immediate task will be to sell to Congress the $ 1.9 trillion stimulus package from the Biden government.
Yellen will also have his hands full on a number of other important issues for the markets, ranging from issues of financial regulation to international affairs.
Here is a primer on the policies that a Treasury led by Yellen would follow:
‘Big’ in stimulus
At his appointment hearing on Tuesday, Yellen emphasized the specific need for “big” in the stimulus.
As proposed, the Biden plan on COVID-19 relief would include additional stimulus checks of $ 1,400 and an extra $ 400 per week in unemployment insurance benefits, among other provisions. Yellen said the best “return on investment” would be the bill’s public health spending to boost the vaccination process, as well as relief for small businesses.
Yellen also pointed to the need to help state and local governments with their huge budget deficits.
With a Democratic majority in the Senate and the House, the Biden government has more legislative space to pass a bigger package than it would have if Democrats lost the second round through Georgia’s two Senate seats.
UBS Global Wealth Management says that the greater chances of greater stimulus “make stock valuations seem more reasonable”, especially in a low interest rate environment.
“We see attractive opportunities between more cyclical companies, sectors and markets,” wrote Mark Haefele of UBS on Thursday.
Higher taxes
The Biden administration’s framework for tax policy includes a steeper tax for those earning more than $ 400,000 a year, with an increase in the corporate tax rate to 28% (compared to the 2017 Trump tax cuts that reduced the rate from 35% to 21%).
Yellen said he would like to work with other nations on a globally coordinated approach to corporate taxes, adding that it does not want to undermine the competitiveness of American companies.
But she emphasized that her main priority is a tax base that supports investment in “things that will create good jobs”, such as infrastructure, manufacturing and research and development.
“We need to think about taxes in the context of the package that aims to do these things. And to the extent that financing is necessary for these very valuable investments, I believe that it must come in a fair manner. “
US-China trade relations
Yellen said China is “our most important strategic competitor”, but acknowledged concerns about intellectual property theft and forced technology transfers, the central issues of the US-China trade war between former President Donald Trump and President Chinese Xi Jinping.
Yellen extensively mentioned that he preferred to negotiate with countries together, rather than unilaterally, suggesting that he would avoid the Trump administration’s preference not to participate in group trade deals like the Trans-Pacific Partnership.
Yellen added that, where countries break the rules, “sanctions are a tool that can be very effective” – but he was vague about how she could use that tool.
Fed Policy
Yellen is also likely to use his deep knowledge of monetary policy when working with his former colleague Jerome Powell, who currently runs the Fed.
Together with Trump’s Treasury Secretary Steven Mnuchin, Powell helped prevent a total financial crisis by using funds from the Coronavirus Aid, Relief, and Economic Security (CARES) Act to protect markets ranging from corporate debt to municipal bonds. But several of these programs expired at the end of last year, and there are legal issues surrounding Yellen’s ability to reopen them.
“Yellen and Powell advocated continued and robust support for the economy, which would eliminate the recent friction seen between Treasury Secretary Mnuchin and the Fed in continuing Fed lending programs,” wrote analyst Ed Mills of Raymond James when Yellen was appointed in November.
Yellen also made it clear that the Fed’s low interest rates are one reason the Fed can afford to spend now.
“The interest burden of debt interest as a proportion of GDP is not greater now than it was before the 2008 financial crisis,” said Yellen on Tuesday.
Financial regulation
The Biden government is completing its appointments to the agency, with Gary Gensler being expected to head the United States Securities and Exchange Commission (SEC) and Rohit Chopra to head the Consumer Financial Protection Bureau (CSFB).
Isaac Boltansky, of Compass Point, wrote on Monday that the appointments point to a regulatory agenda with a “significant ramp in the activity of supervision, inspection and regulation”.
But in the banking sector, Yellen told Congress that she was “pleased to see” capital levels in banks during the pandemic, suggesting that she was largely comfortable with the location of regulatory settings.
The Trump administration has implemented some setbacks from the Dodd-Frank framework for financial regulation installed by the Obama administration after the financial crisis. And even though the Biden government is planning to appoint Michael Barr, one of Dodd-Frank’s architects, to be a major banking regulator, Sherrod Brown, the top Democrat on the Senate Banking Committee, suggested that he would not work to undo Trump’s regulatory rules. reversals.
In turn, Yellen’s focus may be on climate change-focused financial policies, which she described on Tuesday as “an existential threat”. Yellen said he plans to appoint someone “at a very senior level” within the Treasury to focus specifically on financial system risks and fiscal benefits related to climate change. The Federal Reserve has already called for more transparency from financial companies about climate risks.
Digital currencies
In 2018, Yellen said he was “not a fan” of the plethora of cryptocurrencies out there. But Yellen can soften his tone as the Fed explores the development of its own stablecoin.
In recent years, the Fed has been conducting experiments with digital dollars and, by extension, the use of a digital currency issued by the central bank. Fed officials made it clear that while they are experimenting with the technology, they have not committed to actually launching one.
Still, Yellen’s comments to Congress do not point to a warm view of cryptocurrencies.
“Cryptocurrencies are a particular concern, many are used, at least in a transactional sense, for illicit financing,” said Yellen on Tuesday. “I think we really need to look at the conditions under which we can restrict its use and ensure that the fight against money laundering does not take place through these channels.”
Brian Cheung is a reporter who covers the Fed, economics and banking of Yahoo Finance. You can follow him on Twitter @bcheungz.
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