Janet Yellen Has Excelled at Large Jobs. This Will Be the Hardest One But.


One notably fascinating space to look at would be the relationship between fiscal coverage — the ability to tax and spend, quickly to be partly beneath Ms. Yellen’s stewardship — and her former area of financial coverage, the ability to regulate the availability of cash. These traces have turn out to be extra blurred this yr. The pandemic response has been organized as a joint effort between the Treasury, which is placing up billions of {dollars} in capital to assist debt markets, and the Fed, which administers the applications and lends billions extra from its personal limitless stability sheet to make them extra highly effective.

However there have been clear schisms up to now. The Fed has been extra inclined to construction the applications to assist the financial system extra however with larger threat that the Treasury will lose cash, whereas the Trump Treasury has been extra cautious.

In the meantime, the Fed is shopping for huge sums of Treasury bonds and preserving rates of interest near zero indefinitely, looking for to stimulate the financial system — and successfully giving the federal government carte blanche to spend as essential to include the financial fallout of the pandemic. It raises knotty questions on simply how impartial the central financial institution is, and must be, from the remainder of the federal government at a time of disaster.

Ms. Yellen will method these questions steeped within the institutional values of the Fed, the place she began her profession as a younger researcher. She has served as president of the San Francisco outpost of the central financial institution, as its vice-chair, and 4 years as its chief. She and Jerome Powell, the present Fed chair, had been colleagues for a few years. She entrusted him with a lot of the exhausting, unglamorous work of overseeing the central financial institution’s operations.

When she and Mr. Powell have the common breakfasts and lunches which can be typical for the occupants of their jobs, there shall be an irony that she, as an economist, has a extra standard résumé for a Fed chair and he, a lawyer and former Wall Avenue and Treasury official, has a job historical past extra typical of a Treasury secretary.

Nonetheless, anticipate her to push for extra liberal use of emergency credit score services to assist the financial system, whereas additionally sustaining a comparatively conventional view of the significance of Fed independence and its means to form financial coverage with out being second-guessed by political authorities. A Treasury secretary with much less attachment to the Fed may take a extra versatile view of the roles of the 2 organizations.