May 16, 2021

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The Yellen Criterion: US Treasury Chief Sees Unemployment Key | News on the coronavirus pandemic

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U.S. Treasury Secretary Janet Yellen has said she will judge the success of President Joe Biden’s coronavirus stimulus package by how quickly it will bring the U.S. economy back to pre-unemployment levels. pandemic.

Speaking to an online event from the New York Times newspaper, Yellen also downplayed the increased debt levels that would be incurred by Biden’s $ 1.9 trillion US recovery plan being debated in Congress. She said that due to low interest rates, U.S. interest charges as a percentage of gross domestic product (GDP) are at 2007 levels.

The current unemployment rate in the United States is 6.3%, up from 3.5% before the pandemic – a level widely seen as effectively full employment. But Yellen said that because four million people have dropped out of the workforce due to childcare responsibilities during the COVID-19 pandemic, the effective unemployment rate is close to 10%.

“For me, success would be if we could go back to pre-pandemic unemployment levels and see the re-employment of those who lost their jobs in the service sector, in particular – I would consider that as a measure of success as well.

Yellen said if the federal government did not spend the money needed to quickly get the economy back on track, it would hurt U.S. fiscal strength, citing the long, slow recovery from the 2008-09 financial crisis. .

“So by having a stronger economy, part of the money spent pays off,” Yellen said.

She said traditional debt valuation metrics, such as the 100% debt-to-GDP ratio in the United States, are less relevant in a very low interest rate environment.

A “more important metric” was the interest payment on the federal debt as a percentage of GDP, which, at around 2%, is no higher than in 2007, when interest rates were significantly higher.

Bonds of the century, tax hikes

The Treasury is looking to take advantage of these rates by issuing longer-term securities, Yellen said. When asked if the Treasury would consider a 100-year bond, she said the market for that maturity would likely be “very small” with “limited interest”.

The longest current Treasury note is a 30-year note.

While bond yields have climbed in recent times – in part thanks to expectations of Biden’s $ 1.9 trillion stimulus proposal passed by Congress and fueling economic growth with faster inflation – they remain historically low. Ten-year Treasury bond yields hit 1.39% on Monday, the highest since last February but still well below the 3.13% average over the past 20 years.

[Bloomberg]

Yellen also said Biden supported an increase in business taxes and told him he was considering raising rates on capital gains, while avoiding a wealth levy.

“A wealth tax has been discussed, but it’s not something President Biden favors,” Yellen said.

The administration is seeking to raise the corporate tax to 28%, Yellen said. The Treasury chief said last week that revenue measures would be needed to help fund Biden’s longer-term economic reconstruction program to address concerns about debt sustainability.

Former President Donald Trump cut the corporate tax rate from a maximum of 35% to a fixed rate of 21% in 2017.

Yellen also said that a capital gains tax hike might be something “to consider”. Asked about a financial transaction tax, she said, “We should take a close look at what effect this would have” on investors.

Climate stress

On climate change, which should be a new priority for the Treasury, Yellen said the ministry may be able to help coordinate climate-related stress tests on banks and insurers – through the Federal Reserve or other regulators.

The US central bank is already performing tests to deal with vulnerability to economic or market downturns and uses the results as the basis for financial institutions’ capital requirements. No climate-related test should have “the same status in terms of limiting payments and principal” as regular assessments, Yellen said on Monday.

Yellen separately reported that the Biden administration supports research into the viability of a digital dollar. “Too many Americans don’t have access to easy payment systems and bank accounts and I think that’s something a digital dollar, a central bank digital currency, could help,” he said. she declared.

Yellen also said she did not anticipate an offer from Biden to become Secretary of the Treasury, at a time when she was focusing on research while working at the Brookings Institution.

Noting the 24-hour stress of a job like running the Treasury, the former Federal Reserve chairman said, “Initially, I was reluctant to return to this area.” Biden then went on to explain how she might be of help, Yellen said.





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