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This week the markets were buoyed by the news that President-elect Joe Biden intends to nominate Janet Yellen to be Treasury secretary but, while she is eminently qualified, her lack of political deal-making experience could be an Achilles heel, according to economists at Capital Economics.

Key quotes

“Without question, Janet Yellen, the ex-Fed Chair and academic economist, will have a very close working relationship with current Fed Chair Jerome Powell, which will presumably include trying to revive the Fed’s emergency lending facilities that Mnuchin will allow to expire at the end of this year. But as an ardent defender of the Fed’s independence and inflation-fighting mandate, she would seem to be the last person who would put pressure on the Fed to fund additional government spending via any MMT-style monetary financing by the Fed.”

“Yellen has called repeatedly this year for more fiscal stimulus and, as an academic specialising in labour market issues, is well placed to design policies to get people back to work. But, as a relative outsider to the Biden team, it remains to be seen how much influence she will have on forming policy.” 

“The big question is whether she will be able to sell Biden’s economic plans to a split Congress. At first glance, her quiet and deliberate demeanour suggests she might struggle. But we definitely wouldn’t underestimate her and, besides, unlike the many State Governors who have little Washington experience when they become President, Biden knows Congress inside-out and can do his own deal-making. In which case, the only possible drawback to Yellen’s nomination may not matter that much in practice.”


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