What does Janet Yellen as Treasury secretary mean for the US economy?
- Given that Yellen has been chair of the Federal Reserve, US fiscal and monetary policy are likely to be much more in sync
- While Yellen is not an advocate of austerity policies, if the market appetite for risk skyrockets or the dollar weakens considerably, higher interest rates might come sooner than expected
Next year will be transformative for the global economy, policy perceptions and financial markets as the world finally transcends the Covid-19 pandemic. Interest rates are already bottoming out, and the US might be in the vanguard for rate rearmament a lot sooner than expected.
Irrational exuberance has done its job, risk-aversion is receding and a return to better times might tempt global policymakers to talk tough again in 2021. Premature tightening should be resisted at all costs.
It’s an exciting move since Yellen preceded current Fed chair Jerome Powell as central bank head, proving a unique opportunity for US fiscal and monetary policy to work much more closely to the economy’s advantage. There’s a better chance now that Biden’s recently unveiled US$7 trillion coronavirus recovery package can rescue the US economy from its deepest recession since the Great Depression.
The good news about Yellen is that she is not an advocate of austerity policies and has spoken about the need for the government to extend “extraordinary fiscal support” during the pandemic. The aim of Biden’s Build Back Better economic recovery package is sustainable recovery, funding new job creation, boosting consumer spending power with a doubling of the national minimum wage to US$15 an hour, while investing in new infrastructure initiatives to boost economic regeneration.