David Helscher

David Helscher

Do you have time for a pop quiz? Who was the first Secretary of the Treasury? A hint: He has a Broadway musical about his life.

It would seem unlikely that the latest occupant of this office will be on the stage anytime soon, but she could be under the gun. Janet Yellen has been confirmed as the latest Treasury Secretary, being the first female to occupy that office.

There are few people with her qualifications, having been in a senior position within the Federal Reserve for 17 years, serving a term as Chair of the Federal Reserve, Chair of the White House Council of Economic Advisers under the Clinton Administration, and a leader in the economics profession for five decades. All of her talents and qualifications will be needed in heading a department that employs 87,000 people and has an annual budget of $20 billion. There are a number of challenges she will face.

Politically, she will want to avoid an economic slowdown. Vaccine development has been exciting but the transition from development to shots in the arm will take some time. Can the economy be maintained during this time period?

Recent labor force and employment data show significant unemployment and elevated levels of applications for unemployment benefits. Many point to a correlation between virus surges and unemployment as infections have created additional restrictions on re-opening the economy.

As more people are vaccinated, the economy may return to something like normal, or activity similar to the pre-pandemic period. At her last stint at the Fed, Secretary Yellen spent a fair amount of time on maximizing employment. She will likely advocate for measures that speed the return to employment for those being displaced due to the pandemic.

She did as much during her confirmation hearings, seeking further fiscal relief legislation. This may require a lot of finesse to thread the political needle in the current Congress.

She will have to work to reestablish a good working relationship between the Federal Reserve and the Treasury Department. This may be the easiest task for her as she and Fed Chair Jerome Powell have previously worked together and had a good working relationship. Politics intervened during the past year as the Treasury withdrew support of some of the Fed’s lending programs. There may be opportunities for collaboration between the two organizations to provide cheap funding for loans to challenged economic sectors.

And there is then the national debt, which has ballooned of late. Her task will be to find the best way to meet the government’s borrowing needs. Current debt is heavily weighted to the short term, even if the country will be deeply in debt for a long time. During the current period of low interest rates, she will need to consider locking in low borrowing costs for longer terms. She was a board member of a non-partisan organization that promoted fiscal discipline. She can seek to influence the direction of the debt load and borrowing control, but this is ultimately Congress’s responsibility.

The Treasury Secretary is also the country’s primary financial diplomat. During her tenure as Fed Chair, Ms. Yellen became acquainted with global central bankers as well as finance ministers from major economies. The Treasury Department will also be in charge of enforcing financial sanctions that have increased over the past several years. The IRS is also a part of the Treasury Department and it is estimated that as much as $400 billion goes unpaid annually. Collecting these unpaid taxes will require personnel and technology, but some Congressional members would prefer to hold back on any additional funding of this agency.

After her tenure, Janet Yellen may not be the subject of a movie or stage show. Many of the topics she will need to navigate do not possess the necessary drama or literary hook to draw in an audience. But the financial markets will be on the edge of their seats awaiting her actions to implement the new administration’s policies.

David Helscher is a senior vice president and trust officer with Clinton National Bank.

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