Andrew Harnik/AP Photo
Former Fed Chair Janet Yellen at the Fox News bureau in Washington, August 14, 2019
President-elect Biden is likely to name a chief of staff as early as this week. Favored for the job is his former chief of staff, Ron Klain, who had that post from 2009 to 2011 when Biden served as vice president.
One qualification that gives Klain the edge is that he served as President Obama’s Ebola response coordinator in 2014–2015, not a bad qualification during the current pandemic. Another is that Klain is far more acceptable to progressives than Wall Street–afflicted members of Biden’s inner circle such as Steve Ricchetti or more conservative senior advisers like Jeff Zients, CEO of the Cranemere holding company, or former Democratic Leadership Council leader Bruce Reed.
As Biden looks for prospective Cabinet members who might satisfy both wings of his party and win confirmation by a Senate that could stay majority-Republican, one interesting name has surfaced for the key post of Treasury secretary. That would be former Federal Reserve Chair Janet Yellen.
Yellen would be an interesting choice on several grounds. She was nearly reappointed as Fed chair by Donald Trump, who liked her policy of very low interest rates. Yellen is just liberal enough for the liberals, just conservative enough for Wall Street; and as a former Fed chair, she would be hard for Republican Senate Leader Mitch McConnell to block.
She came to the Fed chairmanship in 2014, appointed by Barack Obama after a successful struggle by Senate progressives to get Obama to choose Yellen over Larry Summers, to whom the president had all but promised the job. At the time, Yellen’s selection was a clear win for the party’s left.
Yellen was not only the first woman to hold the post. She was a student of labor markets with an abiding commitment to full employment and a skepticism that tight labor markets caused ruinous inflation.
Yet in office, Yellen was surprisingly hawkish on monetary policy. As the economy stumbled toward a too-slow recovery, Yellen and her colleagues acted to raise interest rates several times beginning in 2015, on the premise that it was time to end the heroic bond purchases that had kept the economy afloat during and after the financial collapse, and the even odder presumption that rates needed to be raised now in case they had to be cut later.
Only in 2019, after overly tight money had done a lot of economic and political damage, did the Fed relent and target lower rates. The sluggish recovery, especially in the Midwest, helped lay the groundwork for Trump’s conversion of once Democratic working-class voters.
Lately, however, Yellen has been sounding like a born-again monetary dove. As Treasury secretary, Yellen would not control interest rates. But she would have a great deal of influence over how Biden dealt with the tricky question of the federal deficit.
Trump’s tax cuts, the revenue losses of the pandemic-afflicted economy, combined with the emergency spending of the CARES package, have run up deficits to the range of 100 percent of GDP. This sets off alarm bells among deficit hawks, which include fiscally conservative Democrats. But Biden will need to significantly increase deficit spending if he is to rebuild the economy and carry out his campaign pledges.
Yellen is also expected to be dovish on deficit spending, and a counterweight to the fiscal conservatives who may be appointed to other key posts such as OMB. The Treasury also has the power to liberalize terms of Fed lending to states, localities, and small businesses.
Yellen is also good, but far from transformative, on regulatory policy. As Treasury secretary, she would chair the powerful interagency regulatory body the Financial Stability Oversight Council, which was created by the Dodd-Frank Act and has languished under Trump and his Treasury secretary, Steve Mnuchin.
In short, she’d be likely to toughen bank supervision, but not fundamentally alter Wall Street’s larger toxic business model, the way a secretary like Elizabeth Warren or Sarah Bloom Raskin might. Still, Yellen right now is probably the best that liberals can get.
Until now, Lael Brainard has been the favorite, as I’ve reported. “Lael peaked too soon,” says one source.
Paradoxically, the closely divided Senate not only gives Republicans more power over key nominations. It gives progressives such as Elizabeth Warren, Sherrod Brown, Bernie Sanders, and Jeff Merkley more power too. All could live with Yellen.
