Market Commentary

Big Stimulus Coming?!

As of Monday, November 23rd, President-Elect Biden’s administration has been allowed to access the resources necessary to begin their transition into office. While Trump hasn’t quite conceded yet, this is the first step into accepting a decisive defeat. With the start of the next term coming upon us, Biden has begun making personnel changes.

An early and important nomination for the Biden administration is the Treasury Secretary, who would act as the principal advisor to the President and Cabinet on economic issues. Biden has put forth Janet Yellen, former Chair of the Federal Reserve, as his choice for the role.

After learning this news, the market responded with another rally, bringing the Dow to a new all-time high above 30,000 points, based on speculation about a new, massive stimulus package.

Continue reading to learn exactly what this recent appointment means for the markets.

What Does the U.S. Treasury Do? 

The U.S. Treasury is a Cabinet-level agency of the federal government and oversees crucial functions including managing federal finances, overseeing national banks, printing and minting all U.S. paper currency and coins in circulation, and myriad other tasks.

The Treasury is the source of quite a lot of contention this year due to efforts to stimulate a pandemic-afflicted economy as current secretary, Steven Mnuchin, created the largest economic stimulus package in American history using money that the government didn’t have.

Moving forward, the role of the Treasury will also include digging the U.S. out of the deepest recession since the Great Depression. With continuously rising COVID-19 cases and vaccines only starting to make headway, the next Treasury Secretary will have to make decisions about a new prospective stimulus package to tide citizens over until a natural recovery begins.

Yellen’s Stimulus Stance

Before we get into the specifics, we should take a second to celebrate Yellen’s achievement, becoming the first female Federal Reserve Chair and first female Treasury Secretary (pending upcoming bipartisan approval).

In terms of her background, 74-year-old Janet Yellen is a passionate labour economist with philosophies rooted in Keynesian economics and counter-cyclical stimulus; simply put, she believes in government deficit spending to pull through economic depressions. Yellen’s extensive background at the Fed is concrete proof that she understands economic theory intimately, while her moderate political stance ensures that she will not be pandering to either major political party.

Yellen has called for “extraordinary fiscal support” to be offered to Americans as the economy recovers from COVID-19, which will likely precipitate into a renewed stimulus package if and when she takes office.

To further confirm this belief, Yellen has stated that it is “simply essential” for both households and businesses to receive government support throughout ongoing turmoil from the pandemic.

These statements are amongst many others that support the theory that Yellen will be aggressively spending through a government deficit, with no artificial rush to return to pre-pandemic policies.

Yellen’s Influential Financial Connections Tenure Goals 

As a longstanding economic influence throughout America, Yellen iventuring into political waters for the first (major) time with support from both sides of the aisle. Additionally, her history with the Fed bodes well for future relations with the organization (which have become strained by Mnuchin’s recent decision to decline the extension of stimulus programs at the end of this year). 

With an astute understanding of labour market implications, Yellen is looking to avoid repeating the mistakes of the 2008-09 financial crisis, wherein Congress delayed a full economic recovery by looking to cut government spending prematurely. With Biden a first-hand observer of the 2008-09 decisions as former President Obama’s second-in-command, it’s likely that he will lean into Yellen’s stance and expertise, moving forward. 

Facing the daunting task of delicately organizing a full economic recovery throughout the (hopeful) tail end of a pandemic is not being addressed lightly, though both financial and political leaders seem to be in agreement that Yellen is best suited for the job. 

Leave a Comment

Get 30+ hours of analyst research directly in your inbox weekly. Sign-up today to stay on top of the market.