Why Janet Yellen's nomination to lead Treasury bodes well for the US economy

Former Federal Reserve chair Janet Yellen is no stranger to breaking glass ceilings and she's likely to be smashing one more if confirmed by the Senate now that President-elect Joe Biden nominated her as the next Treasury Secretary.

Mr Biden's nomination of the 74-year-old economist for the post already seems to have garnered tacit approval from Wall Street, Democrats and moderate Republicans.

Mr Yellen garnered 11 Republican votes at her last Senate confirmation in 2014 as Fed chair nominee, while other party members abstained. That makes it more likely she will be confirmed as Treasury Secretary even if Republicans retain control of the Senate.

If confirmed by the Senate, Ms Yellen would be only the second person to hold the post of both the US Treasury Secretary and the Federal Reserve Chairman, after G. William Miller. And after being the first woman to head the country's central bank, a Senate confirmation will make her America's first woman finance minister.

"Janet Yellen is an extraordinary choice for Treasury Secretary, and should be swiftly confirmed by the Senate," said Tim Adams, chief executive of the Institute of International Finance.

"She is a world class economist and dedicated public servant, and will be a trusted, steady, and pragmatic hand on the helm as the US navigates the economic recovery from the Covid-19 pandemic.”

Nobel-laureate and American economist Paul Krugman tweeted that Ms Yellen has the experience required for the role and had a "terrific" track record.

“One of the people who kept realistic, useful macroeconomics alive through some intellectual dark times,” he said.

Once shunned by President Donald Trump for being “too short” to lead the US Fed for a second term in 2018, Ms Yellen's experience as an economist and a distinguished academic could be valuable as the US tries to revive its economy amid the pandemic.

Ms Yellen graduated with the highest distinction from Brown University with a degree in economics in 1967. She went on to earn her PhD in the same field from Yale University a few years later and focused on labour markets. Ms Yellen is considered a reformer, a proponent of gender equality, and pro-fiscal stimulus. Throughout her career, she has held teaching positions at prestigious universities such as the London School of Economics, Harvard University and University of California Berkeley.

She is Professor Emerita at the University of California at Berkeley where she was the Eugene E. and Catherine M. Trefethen Professor of Business and Professor of Economics (1999-2006) and has been a faculty member at the university since 1980.

In addition to her academic career, she worked for a year as an economist at the Federal Reserve Board in 1977. In 1999, she returned to public service after being selected as chair of the White House Council of Economic Advisers – becoming the first woman to do so. Following that, she served as chief executive of the Federal Reserve Bank of San Francisco between 2004 and 2010 and as vice chair of the Federal Reserve Board until 2014.

After completing her term as a US Fed chairman in 2018 – a post she took over from Ben Bernanke in 2014 – she became a Distinguished Fellow in Residence with the Economic Studies Programme at the Washington-based Brookings Institute think tank.

Ms Yellen’s nomination as Treasury Secretary comes as America reels from the coronavirus-induced slowdown that has fuelled unemployment and stalled growth.

As the country's finance minister, her focus "is likely to be more on policies aiming to boost employment and reduce inequalities, rather than cutting taxes or easing regulations," said Edward Bell, senior director of market economics at Emirates NBD.

In her new role, Ms Yellen will need to take on a slightly more aggressive role.

“Investors will be closely monitoring how Yellen transitions from the consensus-based decision making process at the Fed, to the more combative chambers of Congress, where she could be called upon to assert ambitions that are in conflict with others on Capitol Hill,” said Han Tan, market analyst at Fxtm.

“Markets could be offered early signs of this anticipated battle of wills at Yellen’s Senate confirmation hearings, which ensure that it would be a closely-watched affair.”

As the US economy looks to stave off the threat of a recession, analysts said a combination of Ms Yellen and her successor at the Fed, Jerome Powell, will be good for an economy that is still gridlocked over plans for additional fiscal stimulus.

"Yellen as Treasury Secretary and Powell as Fed chair is an exceptionally dovish combination," said Stephen Innes, chief global market strategist at Axi. "It is not because of pressure to add to the policy, but rather because both have the same views on jobs. They have witnessed policy mistakes like 'Taper Tantrum' and gnarly market impacts of early rate hikes.

“There will be a mutual agreement for a very, very long time. And that cohesion will be good for the market in general.”