As the Biden administration starts to take shape, a few familiar faces have entered the mix, including Janet Yellen as the potential secretary of the Treasury, replacing Steven Mnuchin. In addition to being the first woman Treasury secretary, Yellen would be the first person to be the head of the Treasury, the Fed, and the White House Council of Economic Advisors.
The stock market has reacted positively so far to the news of her potential nomination, partly because Yellen is a known quantity. We've seen her in action before through multiple administrations as far back as the Clinton presidency.
A cautious dove
Yellen's background is primarily in academia, but her role in the Fed as a steadying force has earned her the praise of Wall Street big money types. She tends to move slowly and deliberately when it comes to interest rates, favoring small increases over big, sweeping moves. This could mean that interest rates could stay relatively low as the economy recovers. She is known as a dove, meaning she favors low interest rates to help spur job growth. The downside of dovishness is that it can lead to inflation.
Yellen is also no stranger to government stimulus packages and may help the Biden administration push through policies to aid both businesses and individuals. This could be good for specific industries such as travel and hotels, which have struggled in recent months.
Her knowledge of the Fed may also come in handy when collaborating with Jerome Powell, the current Fed chair, whose term doesn't end until 2022. The Treasury and Fed reached a divide recently when current Treasury Secretary Steven Mnuchin announced he won't extend loan programs set up through the CARES Act through their current expiration at the end of year. Powell has stated that these types of programs should remain in place as long as they're needed.
A firm hand on the economy
Yellen has received bipartisan support previously and is known to work with individual policymakers as well as foreign finance ministers. This is a skill that may be needed as the global economy continues to react to the pandemic. She is business-friendly but also very focused on the needs of individuals. Because she was the head of the San Francisco Fed during the Great Financial Crisis, she had a front-row seat to the housing meltdown and will likely be very sensitive to making sure something similar doesn't happen again. Given Biden's focus on housing, we could see a lot more emphasis on making sure people have opportunities for homeownership. This could be good news for investors focusing on flipping properties for new homeowners.
"Yellen, if confirmed as Treasury secretary, will be part of a chorus of Democratic voices in Washington singing in favor of more economic stimulus and pro-housing market regulation and legislation, either during the current lame-duck period and/or after Joe Biden takes the oath of office," adds Bankrate (NYSE: RATE) senior economic analyst Mark Hamrick.
Yellen is known to be a Keynesian economist, which means she believes in the value of monetary policy to help keep the government on a steady course, and as a labor economist she is particularly focused on unemployment. I tend to believe she would favor programs like opportunity zones, although perhaps not quite as robustly as her predecessor.
A stable lending environment makes real estate happy
Edward Mermelstein, founder & CEO of One and Only Holdings, a luxury real estate investment consulting firm, points out that Yellen may help play a role in a robust recovery year.