Markets cheer Yellen pick for Treasury, seeing her focus on fixing the economy and not politics

Janet Yellen, chairman of the outgoing Federal Reserve of America, holds a news conference on December 13, 2017, following a two-day Federal Open Market Committee (FOMC) meeting in Washington.

Jonathan Ernst | Reuters

Janet Yellen’s choice of Treasury Secretary as President-elect Joe Biden was seen as a victory for the markets, as the former Federal Reserve chair on fixing the economy rather than the progressive democratic agenda feared by some investors Attention should be paid.

The first female Fed chief will also be the first female Treasury Secretary and face unprecedented challenges to record levels of mass unemployment and debt, as the government spends even more to reverse the effects of the epidemic during the Biden administration.

Barry Kannap, head of research for Iron Macroeconomics, said, “For me it shows that Biden is taking stuff very seriously and certainly not turning to the left. He’s a very serious economic thinker, and he has some serious there are problems.”

Stock market disruptions and financial stocks moved higher by the day as news of his pending nomination leaked. s familiar with the case told CNBC Monday afternoon that the presidential-election had chosen Yellen, who was believed to be with Fed Governor Lyle Brainard and former Fed Vice Chair Roger Ferguson.

“There are a lot of consequences that could be bad for the banking sector. For me there was a real risk of appointing that Treasury Secretary. Can you get someone who was making an outcry in the banking sector,” Kannap said . One market fear was that Biden could nominate someone like Sen. Elizabeth Warren, D-Mass., Who is clear about the regulation of banks.

“Yellen talked long ago about the high bank capital level [financial] Crisis, but I think that is a fairly benign result for the banking sector. When we have had problems with that situation in the past in both Republican and Democratic administrations, this is when there were people who did not understand economics and taxes, ”said Kannap.

Ed Mills, Raymond James Washington policy analyst, said Yellen has credibility that shows she can be tough on enforcement. He conducted a bank stress test while on the Fed and took enforcement action against Wells Fargo.

Yellen, a labor economist, would likely be a strong advocate for fiscal support, rather than someone viewed as partisan. “So overall, if the outcome is less biased, more focused on economic recovery, and someone is comfortable with the market – I’d say it’s a positive development for the market, but more for the economy overall Is important, “Mills wrote. .

Yellen served for a term as Fed President until President Donald Trump replaced him with Fed President Jerome Powell.

Strategists expect the Treasury and the Fed to work collaboratively, and some suggest that Yellen may be a lot more comfortable with her former Fed colleagues. But Khannapp does not agree. “I don’t think it’s a cult of that kind of personality,” Kannap said.

The strategists expect Yellen to be sympathetic to the Fed and possibly allow Treasury Secretary Steven Mnuchin’s decision to end the Fed’s emergency program at the end of the year. Pavel objected to the move.

MUFG Union Bank Chief Financial Economist Chris Roopkey said, “Even though lending facilities were not being used, it did not appear that it was wise to allow them to expire.”

Kannap said that the Fed and the Treasury should be able to work together for longer periods of time in the future and bridge the relationship. “We have so much debt that there is going to be some level of coordination now that didn’t exist before that. I think he would be respectful of the Fed. The bottom line, it didn’t matter who was sitting on that seat. You “The complexity between the Fed and the Treasury was going to end,” Kannap said.

He compared the debt level, currently estimated at $ 3.4 trillion, to a challenge similar to the one facing the US after World War II. At the end of World War II, 70% of bank credit was invested in Treasury securities. It took 30 years to do it 20%, ”he said.

Roopkey said Yellen should do a good job, though the skills for the job are very different than those used at the Fed.

“The Federal Reserve is like an isolated position in a fortress in Washington. You can spend a lot of time in your office but the Treasury Secretary is a very public position and requires political acumen and a lover, so it will be an interesting change, ” he said.

Rupky said that Yellen is also particularly suited to deal with an economy facing such high unemployment. “He’s the one who brought up the issue of income inequality in the central bank,” he said. “She has some political skills. One of the things she introduced to the Fed was more inclusiveness and income inequality. It started under her supervision.”

– Reporting by Yun Li

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