Yellen May Restore Treasury-Fed Cooperation


As Treasury secretary, Janet Yellen is almost certain to pursue tighter coordination with the U.S. Federal Reserve next year — repairing recent frictions — though observers say she will be careful to avoid any specific move that could trigger a wave of Republican protests.

President-elect Joe Biden’s pick for Treasury was at the Fed for the better part of two decades, and saw first-hand how vital the cooperation of the two agencies is to ensuring the flow of credit amid stressed economic times.

Step one, after winning Senate confirmation, will be deciding how to proceed with several emergency Fed lending facilities backed by Treasury money and authorized by Congress through the Cares Act, after outgoing Treasury Secretary Steven Mnuchin announced he would sunset them by year-end.

Both of Mnuchin’s moves have prompted strong partisan reactions, showcasing the charged political atmosphere that Yellen will be entering in her new role. With financial conditions easing amid record stock highs on Wall Street, it could afford her the space to put off any change in direction, as she also attempts to persuade Congress to enact a new fiscal stimulus package.

“The immediate need for some of these facilities certainly has subsided,” said Michael Gapen, chief U.S economist at Barclays Plc in New York and a former Fed Board economist. Yellen is “likely to wait and see if there is a vulnerability” that shows up in financial markets, he said.

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