Former Federal Reserve Chair Janet Yellen pledged to be a "voice for fiscal sanity" if she is confirmed as U.S. Treasury secretary but said her focus in the short run is to help get the economy back on its feet through higher spending.
Yellen said during her Senate confirmation hearing that the government must "act big" on spending amid the low interest rate environment to fuel the economic recovery, saying the "benefits will far outweigh the costs." She warned that the U.S. risks facing a worse economic downturn and a further deterioration in its fiscal health if the government fails to combat the coronavirus pandemic and deliver President-elect Joe Biden's stimulus plan.
"To avoid doing what we need to do now — to address the pandemic and the economic damage that it is causing — would likely leave us in a worse place fiscally with respect to our debt situation," Yellen told members of the Senate Finance Committee on Jan. 19.
Debt caution
Yellen acknowledged that the impact of higher spending on the long-term fiscal trajectory is a concern. However, providing additional relief to Americans and investing in jobs and infrastructure would help put the country on the path to fiscal sustainability, according to the former central banker.
"The longer run, there are challenges in achieving fiscal sustainability. We have to make sure, ultimately, the deficits that we run, if we do that, are consistent with fiscal sustainability," Yellen said, adding that she expects interest rates to remain low for a long time.
Biden last week unveiled a $1.9 trillion pandemic rescue package proposal that includes $1,400 relief checks to most taxpayers; $350 billion in emergency funding for state, local and territorial governments; and $160 billion for a national COVID-19 vaccination program.
"Economists don't always agree, but I think there is a consensus now that without further action, we risk a longer and more painful recession now, and longer-term scarring of the economy later," Yellen said.
Dollar, trade, China
Yellen also told senators that the Biden administration will not seek a weaker dollar to gain competitive advantage, reiterating that the value of currencies should be determined by markets.
"If confirmed, I would work to implement the president-elect's promise to oppose any and all attempts by foreign countries to artificially manipulate currency values to gain an unfair advantage in trade," Yellen said.
The Treasury secretary-designate also assured that the Biden administration will stand up to what she called abusive and unfair trade practices by China, saying she is prepared to use a "full array of tools."
However, Yellen clarified that the U.S. would work with allies in addressing unfair trade practices. She vowed to "strategically and appropriately" use sanctions as an economic tool when dealing with trade issues and even cybersecurity threats.
The Treasury will also focus on the "existential threat" of climate change and its associated risks to the financial system, including its vulnerability to a change in the price of carbon and other assets, Yellen said.
Yellen said she will "look to appoint someone at a very senior level" and create a hub at Treasury to lead policy efforts, including examining any financial risks and tax policy incentives. "I think we should take these risks very, very seriously," she said. "I think climate change is an existential threat."