With Janet Yellen in line for Treasury secretary, President-elect Joe Biden must now round out a hands-on economic team charged with the delicate but nonetheless enormous task of nursing the U.S. economy back to health.
In the coming weeks, the president-elect will nominate a mix of economists and business leaders to helm the Commerce Department, the Securities and Exchange Commission and the National Economic Council.
He will name a successor to U.S. Trade Representative Robert Lighthizer, Council of Economic Advisers Chair Kevin Hassett and Consumer Financial Protection Bureau Director Kathy Kraninger.
A Biden transition team official said Wednesday that the president-elect will name nominees for key economic positions on Dec. 2.
Key vacancies also remain on the Federal Reserve’s board of governors after the Senate failed to confirm President Donald Trump’s handful of recent nominees including Judy Shelton. Jerome Powell’s term as Fed chair expires in 2022, a future opening the Biden administration will likely be quick to fill.
Biden chose Yellen, who in 2014 made history as the first woman to lead the Fed, as his Treasury secretary, people familiar with the transition team confirmed Monday. If confirmed, Yellen would also be the nation’s first woman to serve as Treasury secretary.
“Yellen’s selection as presumptive President-elect Biden’s nominee for Treasury Secretary indicates an overall focus on economic recovery over regulatory policy and is a positive for markets and the economy as a whole,” Raymond James analyst Ed Mills wrote.
“The pick’s signaled focus on economic recovery makes fiscal support incrementally more likely in 2021,” he added. “Comparatively, Yellen will be a more effective voice for expanded fiscal support than other candidates who may have been seen as more partisan.”
But whomever Biden choses, a precarious and volatile U.S. economy will from Day One force officials to hit the ground running with an urgent, involved approach.
The U.S. economy suffered one of its steepest, briefest recessions earlier in 2020, when several states shuttered or pared back nonessential business to help slow the spread of Covid-19.
Gross domestic product — the value of all goods and services produced across the economy — slumped more than 30% on an annualized basis in the second quarter. The unemployment rate jumped to 14.7%. And tens of millions of U.S. workers filed for jobless benefits for the first time.
Though output has partially rebounded since then, the U.S. economy is still about 3.5% smaller than at the end of 2019 and ahead of what’s expected to be a difficult winter battle against the coronavirus.
Biden himself has lobbied for House Democrats’ $2.2 trillion stimulus package to revitalize the economy. But with Senate Republicans more focused on the budget deficit and more targeted aid, administration economists may have to seek other ways to support U.S. commerce after the holiday season.
Given narrow majorities in both congressional chambers, Nathan Sheets, chief economist at PGIM Fixed Income and a former Treasury official, believes Biden’s choice may ultimately have the most immediate impact on everyday Americans.
Sheets, who served as undersecretary of the Treasury for international affairs under the Obama administration, told CNBC that the president has far more leeway in managing trade relationships compared with tax code changes that require Congress’ blessing.
“USTR stands out as an economic post where the issues to be considered—and the opportunities—loom especially large,” Sheets wrote in an email.
“The head of USTR will play a central role in determining the Administration’s positions on a broad set of trade policy issues and, in addition, negotiating the desired outcomes with partners abroad,” he added. “These issues include WTO reform, the specifics of a new US policy on China, and determining the appropriate role for tariffs in the policy toolkit.”
Though little is known about whom Biden will choose to lead the U.S. in trade discussions, comments made by the president-elect and named Cabinet nominees on Tuesday may offer insight on a more multilateral, ally-based approach ahead.
“I believe America is strongest when we work with our allies,” Biden said on Twitter. “It’s how we keep this country safe, counter terrorism and extremism, control this pandemic, deal with the climate crisis, and so much more.”
Antony Blinken, a career diplomat and Biden’s choice for secretary of State, echoed the president-elect later Tuesday.
“Most of the world’s problems are not about us, even as they affect us,” Blinken said. “We need to partner with others.
Biden will inherit a U.S. trade policy marked by a flurry of Trump-era taxes on global imports: Aluminum and steel from most of the world, on olives, wine and cheese from Europe, and on almost 75% of everything the U.S. buys from China.
Trade representative Lighthizer has also overseen a more oppositional U.S. presence at the World Trade Organization in Geneva, opting instead for bilateral agreements rather than negotiations through multilateral bodies.
While Biden has not indicated whether he will remove some or all of the existing tariffs, both Democrats and Republicans may pressure the incoming president to use the levies, or their removal, as a strategic advantage.
Republicans, no longer the free-traders of years past, will likely garner support from Democrats in lobbying against unfettered, globalist trade relations.
Aside from picking a trade representative, Biden and his transition team will need to staff two advisory bodies: the National Economic Council and the Council of Economic Advisers.
Sometimes confused for each other, the NEC and CEA serve similar but distinct functions for a sitting president.
The NEC, currently directed by Larry Kudlow, was created in 1993 by then-President Bill Clinton to collect a large group of agency and department heads to coordinate economic policy.
This council, whose prior leaders include Gary Cohn, Lawrence Summers and Gene Sperling, is often considered the president’s core group of economic advisors. It’s considered the “war room” for economic policy and seeks to sync priorities across the government.
Given that members of the council do not require congressional approval, the NEC can be staffed with business leaders and other industry-friendly confidants.
“The head of the NEC is perhaps the President’s closest advisor on economic issues—someone who is always in the room when important discussions occur and decisions are made,” PGIM’s Sheets wrote.
“For Trump, Gary Cohn and Larry Kudlow were confidential advisors—sharing their views behind closed doors—but also frequent voices in the media explaining Administration policies,” he added. “In some other administrations, the head of the NEC has functioned more as a behind-the-scenes quarterback coordinating positions across agencies and formulating recommendations to the President.”
The Council of Economic Advisers, by contrast, is usually a smaller team of experts who offer the president advice and possible directions for economic policy in a setting closer to a think tank. Their advice tends to run more academic and offers the White House goals to consider and venture.
Potential candidates for these councils are many and include some of then-candidate Biden’s outside economic advisors including labor economist Jared Bernstein, tax policy expert Ben Harris and equitability scholar Heather Boushey.
The American Prospect reported on Tuesday that BlackRock executive Brian Deese is also under consideration for the NEC.
The Biden administration will have a handful of opportunities to nominate candidates to the U.S. central bank.
The Fed, in the middle of one of its largest asset purchase and lending campaigns ever, is in charge of setting interest rate and monetary policy. In normal times, officials will raise or lower borrowing costs to cool or spur the U.S. economy, respectively.
But during emergencies including the Covid-19 recession, Congress may allow the Fed to deploy extraordinary tools to stabilize markets, provide liquidity to struggling firms and expand its massive portfolio of securities.
The biggest prize for the Biden administration will come in 2022, when Powell’s four-year term comes to an end.
Though the Democrat and his team have not criticized policy moves by Republican Powell (who himself has encouraged more fiscal support from Congress), Biden may elect to nominate an economist with a history of concern for income inequality.
Lael Brainard, a current member of the Fed Board of Governors, is widely considered heir presumptive for the role and has reportedly told friends that she would welcome the promotion. The Biden team had at one point considered Brainard for Treasury secretary before reportedly opting for Yellen.
Notwithstanding the chairman post, there remain two vacancies on the Fed’s board that will eventually need to be filled. Trump has either formally or informally nominated a handful of candidates to the open posts, including Shelton, Steve Moore and Herman Cain, who died earlier this year.
For varying reasons, none of Trump’s recent Fed picks have been confirmed by the Senate.
Potential Biden nominees could include economist Bernstein as well as Atlanta Fed President Raphael Bostic.
Bostic, an economist whose work has focused on racial disparities and access to capital, has helped drive those discussions as the first Black president to lead one of the Fed’s 12 regional reserve banks.