Yellen Shows Dollar Shift, China Toughness, Change on Climate
(Bloomberg) -- The U.S. under Joe Biden is adjusting its dollar policy, giving no sign of an immediate shift on China strategy and putting a new focus on climate change. Those are some of the takeaways from Tuesday’s Senate confirmation hearing for the president-elect’s Treasury secretary pick, Janet Yellen.
The three-hour Senate Finance Committee hearing also provided a potential timeline for Yellen’s confirmation. Democratic Senator Ron Wyden, the panel’s incoming chairman, unveiled a scheduling agreement that he said could see a vote on Yellen on the Senate floor on Thursday. That would put her in line to be among Biden’s first nominees to take office.
Yellen, a former Federal Reserve chair, countered criticism from Republicans on the committee alarmed at the size of Biden’s $1.9 trillion Covid-19 relief proposal, saying the U.S. will be better off in the long run if the government contains the Covid-19 pandemic, assists Americans suffering because of it and invests in efforts to build infrastructure and mitigate climate change.
Following are some highlights from the hearing:
Yellen said a key metric to watch is the cost of debt interest payments relative to the size of gross domestic product. It’s now below where it was in 2008 during the financial crisis, she said. That reinforces the argument for using deficit financing to help the pandemic-battered economy, she said.
“To avoid doing what we need to do now to address the pandemic and the economic damage it’s causing would likely leave us in a worse place fiscally and with respect to our debt situation,” Yellen said.
Questioned by South Dakota Senator John Thune, the chamber’s No. 2 Republican, she did say, “I agree with you that it’s essential that we put the federal budget on a path that’s sustainable.” She nodded elsewhere in the hearing to Biden’s plans to boost some taxes in time.
Yellen also said she’d take a look at proposals to launch a 50-year Treasury bond. The current longest-dated security is a 30-year maturity.
Yellen disavowed using exchange-rate policy to obtain a competitive advantage, a marked difference from President Donald Trump and outgoing Treasury Secretary Steven Mnuchin, who repeatedly expressed preference for a weaker dollar. At the same time, she didn’t say she backs a “strong” dollar -- the policy that the U.S. had starting in the mid-1990s.
“The United States does not seek a weaker currency to gain competitive advantage and we should oppose attempts by other countries to do so,” Yellen said.
Yellen also said she would work “to oppose any and all attempts by foreign countries to artificially manipulate currency values to gain advantage in trade.”
Yellen presented what sounded from her like a new tone on China, after the more academic language she used in the past -- in a sign of some continuity from the Trump administration.
“China is undercutting American companies by dumping products, erecting trade barriers and giving illegal subsidies to corporations,” Yellen said, calling the nation an “important strategic competitor.”
China also has been “stealing intellectual property and engaging in practices that give it an unfair technological advantage, including forced technology transfers,” she said. “These practices, including China’s low labor and environmental standards, are practices that we’re prepared to use the full array of tools to address.”
Biden’s Treasury pick highlighted priorities on which Democrats have long sought action, including measures to address climate change and raising the minimum wage.
“Climate change is an existential threat,” Yellen said. “Both the impact of climate change itself, and policies to address it, could have major impacts creating stranded assets, generating large changes in asset prices, credit risks and so forth that could affect the financial system.”
She pushed back against Republican protests over Biden’s plan to raise the federal minimum wage to $15 an hour from $7.25 -- a move that would result in a dramatic increase in about 20 states that don’t enforce a higher minimum pay.
Pointing to a “large economics literature” that examines minimum wage increases in individual states, she said, “The findings are that the job loss is very minimal, if anything.”
And she appealed for inclusion of direct aid to state and local governments in the next Covid-19 relief package, something Democrats unsuccessfully fought for in last month’s aid legislation.
“We’re already seeing substantial layoffs of teachers, and with budget shortfalls we’re going to see further layoffs of essential workers including policemen and firefighters and sanitation workers,” Yellen said. She said that will have “ripple effects through the economy as they contract their spending and create further job losses throughout the economy.”
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