By Naoatsu Aoyama in Washington, D.C.
Former Federal Reserve Board (FRB) Chair Janet Yellen (74) is slated to become the next U.S. Secretary of the Treasury. Yellen was the first female FRB chair, and if appointed, she will be the first female treasury secretary. President-elect Joe Biden has nominated female candidates for other key economic posts as well, to promote economic recovery under his administration, which emphasizes diversity.
“We must restore the American dream—a society where each person can rise to their potential and dream even bigger for their children,” Yellen tweeted on Nov. 30, the day Biden nominated her to the post.
To successfully carry out its policies, the Biden administration must to cooperate with the Senate, where the Republicans are likely to maintain control. Yellen, who has risen through the ranks and been the “first female” in several of her posts, enjoys bipartisan support from Congress and thus makes an ideal candidate for the post of treasury secretary.
When Yellen took over the reins of the FRB in 2014, she was able to secure support from Senate Republicans. During the nation’s economic recovery from the Lehman crisis, she was tasked with “normalizing” an economy that had undergone large-scale monetary easing. Although she raised the interest rate in 2015 for the first time in nine and a half years, Yellen nevertheless did not rush to implement monetary tightening out of concern that kind of move would harm employment.
Partially because of the disproportionate damage the COVID-19 pandemic has inflicted on the nation’s non-white communities, Biden has emphasized diversity in selecting candidates for key positions. He has nominated labor economist Cecilia Rouse of Princeton University to lead the Council of Economic Advisors, a group that Yellen chaired in the past. Neera Tanden, president of the left-leaning Center for American Progress, was tapped to head the Office of Management and Budget. Both are female and ethnic minorities: Rouse is an African-American, Tanden an Indian-American.
Yellen’s monetary easing applauded
Amid today’s unprecedented economic crisis, the next U.S. administration will have little choice but to maintain large-scale fiscal expenditure and the corresponding monetary policy in close cooperation with the FRB. Biden has already indicated that he plans to invest 2 trillion dollars (208 trillion yen) in renewable energy and spend a large amount of public funds on education and social welfare. To achieve these goals, Yellen will have to demonstrate her ability to coordinate with Congress, which has budget authority.
Even before the pandemic, the U.S. economy was already facing structural changes. The common wisdom is that when the economy is healthy, wages rise and inflation sets in. When the unemployment rate drops, the FRB raises the interest rate to tighten the economy to everyone’s chagrin.
The long-term economic uptrend after the Lehman crisis, however, did not result in inflation—a phenomenon called “Japanization,” where the economy suffers from a prolonged period of deflationary pressure. The concentration of wealth in the hands of the few is partly blamed for this situation. On the other hand, this condition provided the FRB with an opportunity to further relax monetary policy without risking inflation or a higher unemployment rate. Yellen’s monetary easing at that time has received high marks recently.
In a speech she gave at the onset of the COVID-19 crisis in March, Yellen speculated that household and corporate spending might decline from then on, inviting an era of long-term low inflation. Later, Yellen underscored the importance of large-scale government spending.
The ties of trust Yellen shares with Jerome Powell, the current FRB chairman and a former FRB governor under her, also boost her nomination.
Who is Janet Yellen?
Born in Brooklyn, New York, Yellen earned a Ph.D. from Yale University. She specializes in labor market and unemployment. Her husband, Geroge Akerlof, is a Nobel laureate in Economics. Yellen chaired the Council of Economic Advisors under the administration of President Bill Clinton (D) and was president of the San Francisco Federal Reserve Bank from 2004 to 2010. After serving as vice-chair of the Federal Reserve Board, she was appointed the first female FRB chairperson under the administration of President Barack Obama (D). She chaired the FRB from 2010 to 2014.