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Former Fed Chair Yellen Faces Tough Challenges As Biden’s Treasury Secretary

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By Rob Garver

By turning to Janet Yellen to become the next secretary of the Treasury, President-elect Joe Biden is betting that her gravitas as the former head of the nation’s central bank and her past political experience as chair of the Council of Economic Advisers will serve her well as the U.S. economy struggles to come back from a deep pandemic-driven recession. 

Yellen’s prospective elevation to the office first occupied by Alexander Hamilton would make her the first woman to hold the job of the nation’s leading economic policy maker in 231 years. Her anticipated choice as Treasury secretary was first reported by The Wall Street Journal. 

In an administration that will include the first woman ever to serve as vice president, in Kamala Harris, Yellen joins other women Biden is appointing to senior positions. So far, he has tapped career intelligence official Avril Haines as the next director of national intelligence and State Department veteran Linda Thomas-Greenfield as U.S. ambassador to the United Nations.

If confirmed, Yellen, 74, the Federal Reserve chair from 2014 to 2018 and a prominent labor economist,  would be plunged immediately into efforts to avert further damage to the economy as the coronavirus pandemic roars to new heights across the country and lawmakers remain sharply divided about the shape of an additional economic stimulus package.  

She will also face a tough challenge in attempting to negotiate a new package of economic relief after months of stalemate between the Trump administration, Senate Republican leaders and Democratic House Speaker Nancy Pelosi.   

In the past, Yellen has defended massive government stimulus programs, including a $3 trillion effort by the Federal Reserve to help extricate the U.S. economy from the mire of the Great Recession stemming from the 2008 financial crisis. Her philosophy would appear to align with that of the president-elect, who has advocated a sweeping set of policies to ease the economic burden on individuals and promised to “spend whatever it takes” to prevent small businesses from being forced into bankruptcy. 

Yellen’s ascension to Treasury secretary would also go some way toward repairing an increasingly fraught relationship between that department and the Federal Reserve. In just the past week, current Treasury Secretary Steven Mnuchin moved to end an emergency lending program administered by the Fed but funded by Treasury, over the express objections of Fed Chair Jerome Powell. 

Yellen’s nomination would have to clear a Republican-led Senate unless the Democrats manage to regain control of the Senate by winning two Senate seats in Georgia’s upcoming special election. Senate Finance Committee chairman Charles Grassley, an Iowa Republican, voted to filibuster her confirmation as Fed Chair in December 2013 and also voted against her nomination when it came to the Senate floor the following month. 

The ranking Democrat on the Financial Committee, Oregon Senator Ron Wyden, made a statement of support for Yellen on Monday.  

Decades of experience

Widely respected on both the national and international stage, Yellen has been a key figure in economic policy circles for decades. She served as a member of the Federal Reserve Board of Governors from 1994 to 1997, under the chairmanship of Alan Greenspan, before joining the Clinton administration. During her stint in the White House, Yellen served as the chair of the Economic Policy Committee of the Organization for Economic Cooperation and Development. 

Yellen returned to the monetary policy world in 2004, serving as president and CEO of the Federal Reserve Bank of San Francisco until 2010, when she was named vice chair of the Federal Reserve. She was nominated by President Barack Obama and confirmed as chair of the Fed in January 2014 and ran it until February 2018. 

Yellen’s years at the helm of the Fed were marked by a balancing act between competing priorities. She took over six years into a massive stimulus program that had been put in place to pull the U.S. economy back from the ravages of the Great Recession. The Fed had held interest rates at near zero since the end of 2008, and had injected trillions of dollars into the U.S. economy by purchasing Treasury and mortgage-backed securities. 

Under Yellen, the Fed began slowly raising interest rates in December of 2015, and took steps to gradually sell off the securities it had purchased as part of the stimulus program. Yellen’s efforts to roll back the stimulus were too slow for many critics, who warned that her focus on tightening the labor market would fuel disastrous inflation, a position supported by some traditional economic analysts.  

The inflation never materialized, and Yellen left her Fed position in 2018 with unemployment at 4.1%, near a 20-year low, and still declining. 

Yellen’s tenure at the Fed, and her economic and monetary policy work in general, have been marked by a focus on the real-world effects of government policies and their impact on individual citizens.  

Praise for Yellen

David Wessel, a former economics reporter for the Wall Street Journal, has known Yellen for years, in both his capacity as a journalist and in his current role as the executive director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, where Yellen is a distinguished fellow in residence. 

“I covered Janet Yellen when I was at The Wall Street Journal and have worked with her for the past couple of years at the Hutchins Center,” Wessel said. “In addition to her obvious qualifications and years of experience, she has enormous empathy for ordinary Americans and has never lost sight of the true goal of economic policy – not to boost stock prices or fatten bank balance sheets or make some numbers on a spreadsheet add up, but to improve the lives of regular people, the ones whose names never show up in the newspaper or on TV. 

“In addition,” he said, “she is unfailingly the most prepared person in the room.  She demonstrated that as a governor of the Federal Reserve in the Greenspan era and every day since.” 

Raised in New York City, in the borough of Brooklyn, Yellen graduated as valedictorian of her public high school, and went on to earn a bachelor’s degree from Brown University and a Ph.D. in economics from Yale. In addition to her public service, she has taught economics at Harvard, the University of California at Berkeley, and the London School of Economics. 

Yellen is married to George Akerlof, a Nobel Prize-winning economist and professor at Georgetown University. 

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