Tough challenge ahead for Yellen
US President-elect Joe Biden formally nominated Janet Yellen, a prominent economist and former chair of the Federal Reserve, as treasury secretary in his upcoming administration. She will become the first woman to head the treasury department in United States history when Biden assumes office.
Shortly after Biden confirmed Kamala Harris as his running mate in August, Yellen was one of the economists invited to attend a meeting with Biden on how to deal with the recession triggered by the novel coronavirus pandemic.
Yellen’s expertise lies in the labor market, which is tied closely to her background. Growing up in a working-class family in Brooklyn, where her parents lived through the Great Depression, made her sensitive to the pain of unemployment. In a 2013 speech, Yellen said that unemployment rates are more than mere statistics for her, as longterm unemployment can be devastating for workers and their families.
That view has left its mark on Yellen’s career. During her time at the Fed, Yellen was inflation-tolerant and pro-employment, advocating for keeping interest rates low to stimulate growth rather than raising them to combat a surge in inflation.
In 1996, when the Fed was chaired by Alan Greenspan who advocated lowering inflation to zero, Yellen argued that tolerating some inflation would help reduce unemployment. With her as Fed chief, the US’ unemployment rate fell 2.6 percentage points to 4.1 percent while inflation remained below 2 percent.
Yellen’s performance at the Fed also earned her the reputation of a consensus-builder who could bring opposing factions together.
Given the sharp differences between the Democrats and Republicans on a series of issues, ranging from the size of the next COVID-19 relief package to the broader tax and spending policies, the greatest challenge before her will be to bridge the gap and avoid policy delays that can cause secondary disasters to the economy.
The public health crisis has triggered the worst economic recession in the US since the Great Depression. About 57 million Americans have applied for unemployment benefits since mid-March, and stimulus measures adopted by the US government to combat the novel coronavirus outbreak and the recession have left the fiscal deficit at a record $3.1 trillion, which will greatly squeeze Yellen’s policy maneuvering space. It therefore remains to be seen how far Yellen will be able to go in reviving the US economy.