Following up on our Sunday preview of what Joe Biden’s cabinet may look like – in the event the Electoral College joins the MSM in crowning him the next US president – this morning Charlie Gasparino writes that there is “lots of talk among Dems that Biden’s first cabinet pick will be Treasury Secretary” and notes that the choices are Fed’s Lael Brainard, and Roger Ferguson of TIAA-CREF, while progressives such as Elizabeth Warren are “seen off the table given divided Senate and the need for Dems to preserve seats.”
BREAKING: Lots of talk among Dems that @JoeBiden‘s first cabinet pick will be Treasury Secretary. Top choices: The Fed’s Lael Brainard, and Roger Ferguson of TIAA-CREF. Progressives ie @SenWarren seen off the table given divided Senate and the need for Dems to preserve seats
— Charles Gasparino (@CGasparino) November 9, 2020
And while it has rapidly emerged as a consensus view that Brainard will indeed be Biden’s pick for Treasury Secretary, this morning Prospect Magazine’s Robert Kuttner writes that “one interesting name has surfaced for the key post of Treasury secretary. That would be former Federal Reserve Chair Janet Yellen.”
Which is ironic, because as we discussed ahead of the Fed’s revision of its Inflation Targeting policy, an August 31 op-ed by Fed vice-chair Richard Clarida admitted that the Fed’s models may “have been wrong” ultimately costing Hillary the election by keeping financial conditions too tight. Kuttner picks up on this too, pointing out that Yellen was “surprisingly hawkish” on monetary policy, to wit:
Yet in office, Yellen was surprisingly hawkish on monetary policy. As the economy stumbled toward a too-slow recovery, Yellen and her colleagues acted to raise interest rates several times beginning in 2015, on the premise that it was time to end the heroic bond purchases that had kept the economy afloat during and after the financial collapse, and the even odder presumption that rates needed to be raised now in case they had to be cut later.
Only in 2019, after overly tight money had done a lot of economic and political damage, did the Fed relent and target lower rates. The sluggish recovery, especially in the Midwest, helped lay the groundwork for Trump’s conversion of once Democratic working-class voters.
Of course, all of that changed in recent years as “Yellen has been sounding like a born-again monetary dove.”
In any case, bygones will be bygones, and while Yellen would not control interest rates, “she would have a great deal of influence over how Biden dealt with the tricky question of the federal deficit.”
So does this mean that Lael Brainard’s star has set? Citing a source, Kuttner writes that “Lael peaked too soon,” and as he concludes, “paradoxically, the closely divided Senate not only gives Republicans more power over key nominations. It gives progressives such as Elizabeth Warren, Sherrod Brown, Bernie Sanders, and Jeff Merkley more power too. All could live with Yellen.”
Why? Because when it comes to politics, what really matters is that the monetary status quo remains unchanged and stocks keep rising.