On top of climate concerns and rivalry with China, the new US treasury secretary has oversight of hedge funds and other non-bank financial institutions in her sights.

As US treasury secretary, Janet Yellen epitomises the centre-left views of the new US administration. Her confirmation also heralds the breaking of not one but two glass ceilings, as she was also the first woman to head the Federal Reserve (Fed), the US central bank. 

Ms Yellen has invaluable experience when it comes to tackling the economic recovery in the aftermath of the Covid-19 pandemic, having helped steer the US out of the recession that followed the 2008 financial crisis — first as Fed vice-chair from 2010-2014 and then as head of the monetary authority from 2014-2018.   

Further, David Wessel, a senior director at the Brookings Institute (where Ms Yellen was a distinguished fellow before her treasury appointment), says that US president Joe Biden could not have chosen a better “ambassador” to the G7, the G20, the Organisation for Economic Co-operation and Development and other similar institutions, to reaffirm the US as a global economic and financial player and renew its commitment to multilateralism. 

Ms Yellen has some huge tasks ahead of her. What will she focus on? 

Essential work

In her first message to the 84,000 staff at the treasury department, Ms Yellen said: “Even as we work to recover from this pandemic, we cannot forget about the department’s usual business; the essential work that ranges from overseeing financial markets to managing the nation’s finances, to strengthening the global economy and fighting illicit finance in partnership with America’s allies.” 

But, she added, there is another set of long-term objectives. As well as the pandemic, “the country is also facing a climate crisis, a crisis of systemic racism and an economic crisis that has been building for 50 years”.

Economic policy can be a potent tool to improve society

Janet Yellen

“I believe our department can play a major role in addressing each of these crises... Indeed, the reason I went from academia to government is because I believe economic policy can be a potent tool to improve society. We can — and should — use it to address inequality, racism and climate change,” she said.  

She is in favour of the Biden administration’s $1.9tn Covid-relief legislation, the final version of which Democratic lawmakers expect to become law this month. 

In her nomination hearing with the Senate Financial Committee on January 19, Ms Yellen supported this further major fiscal stimulus, warning of the risk of a longer and more painful recession if lawmakers do not “act big” to bolster the recovery. While she agreed with Republican lawmakers — who were critical of the expenditure — that it is essential to put government spending and government debt on a sustainable footing, she said that the most important thing “in my view, that we can do today, to put us on a path of fiscal sustainability, is to defeat the pandemic”.   

As drafted, the further relief plan includes proposals to increase child income tax credits to $3000 a year, raise the minimum wage to $15 per hour, increase food stamp programmes and expand and increase unemployment benefits, which would lift “11 million Americans out of poverty,” Ms Yellen said.

Greener leanings

With regard to climate change, the US Treasury has an important role in a government-wide response and in the transition to a greener economy, which was a pledge that Mr Biden campaigned on. As a first step, Ms Yellen said she will create a new US Treasury hub for all of the department’s climate-related efforts, including related tax policy initiatives. She said she would appoint “a very senior level” official to lead the climate efforts. 

She also made it clear, in her capacity as head of the Financial Stability Oversight Council, which is part of the treasury, that she would raise and emphasise the potential risks to the financial system of climate change and rising temperatures, and of devastating natural disasters. She also expressed concerns about the absence of macro prudential tools and about the unfinished business of figuring out how to oversee and regulate non-bank financial institutions, such as hedge funds and mutual funds.

On the crucial issue of competition with China, in Latin America and elsewhere, she said in her senate hearing: “We also need to compete with China’s economic statecraft. The Biden-Harris administration will craft an alternative vision that promotes democratic governance and transparency in our global health and development work. We will distinguish ourselves from China’s approach to development, including the Belt and Road Initiative, by ensuring that social and economic safeguards are built into the projects we support.”


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter