Janet Yellen's Big Challenges as Treasury Secretary

The transition begins in earnest

After weeks of delay, the government formally authorized a transition of power to President-elect Joe Biden. But even before this step, businesses have shifted focus to the new administration, as Mr. Biden picked key members of his cabinet — including Janet Yellen as his Treasury secretary, which would make her the first woman in the role (after she was the first chairwoman of the Fed).

The General Services Administration designated Mr. Biden as the apparent victor, following certification of the voting results in Michigan and more legal defeats for the Trump campaign in other states. The decision also came amid growing pressure from Corporate America, with more than 100 business leaders urging the government to begin the transition process in a letter yesterday, the latest such call.

• Businesses are pivoting to plans to work with the Biden administration: G.M. withdrew its support for a Trump administration effort to nullify California’s fuel-economy rules, while Facebook is planning a charm offensive for Mr. Biden’s team. Even Steve Schwarzman of Blackstone, one of Mr. Trump’s top corporate allies, said he was “now ready to help President-elect Biden and his team.”

Ms. Yellen returns as a point person on the economy. Her nomination at Treasury would put a famed labor economist, former Fed chair and top White House economic adviser at the center of negotiations over a new round of stimulus. Her dovishness as Fed chief, focus on inequality and unemployment, and openness to unconventional ways to bolster the economy lead many to believe that she will push hard for an expansive rescue package. (Her final act at the Fed, a crackdown on Wells Fargo in response to its account-opening scandal, also suggests that she might be tougher on banks.)

• Her academic background gives her a different skill set from her recent predecessors: Steven Mnuchin was a longtime financier; Jack Lew spent time on Wall Street and in politics; and Tim Geithner was head of the finance-focused New York Fed. As a result, some question whether she has the political and executive skills necessary to deal with a gridlocked Congress.

• Supporters assert that her Fed experience will make for a smooth working relationship with her successor at the central bank, Jay Powell, in steering the U.S. economy away from trouble. “Instead of a dissonance and the break we’ve seen recently between Treasury and the Fed, this is a unified front,” Diane Swonk, the chief economist at Grant Thornton, told Bloomberg. “We need this.”

Ms. Yellen’s selection drew praise across the political spectrum. Mr. Biden promised a choice who would please both progressives and centrists, and he appears to have succeeded. Senator Elizabeth Warren called her an “outstanding choice” who is “smart, tough and principled.” Gary Cohn, the former Goldman Sachs president and Trump economic adviser, said Ms. Yellen was an “excellent choice.” Stock markets jumped after news leaked of her likely appointment.

Further reading:

• “Few people in any era have served at the highest levels of economic policymaking for as long, and with as much distinction.” — The Upshot’s Neil Irwin, in a story today about the challenges she faces as the country’s “chief financial diplomat”

• “When unemployment is exceptionally high and inflation is historically low, as they both are now, the economy needs more fiscal spending to support hiring.” — Ms. Yellen, with Jared Bernstein of the Center on Budget and Policy Priorities, in an Aug. 2020 Times Op-Ed

• “During a tenure characterized by a plummeting unemployment rate and consistently low inflation, Ms. Yellen became a pop culture phenomenon.” — A Dec. 2017 profile by The Times’s Amy Chozick, on how Ms. Yellen “quietly achieved rock-star status” at the Fed

• “She has expressed greater concern about the economic consequences of unemployment, a stronger conviction in the Fed’s ability to stimulate job growth and a greater willingness to tolerate a little more inflation in order to reduce unemployment more quickly.” — An Oct. 2013 profile by The Times’s Binyamin Appelbaum after her nomination as Fed chair

• When The Wall Street Journal analyzed more than 700 predictions in speeches and testimonies by Fed policymakers between 2009 and 2012, Ms. Yellen’s were the most consistently accurate.

HERE’S WHAT’S HAPPENING

Macy’s stores go “dark” as retail embraces e-commerce. The department store chain has converted some stores into fulfillment centers, as the pandemic prompts a big shift to online sales for the holiday shopping season. “Covid has pulled forward five years of fallout into an 18-month period,” one analyst told The Times.

Facebook employees say postelection changes to its algorithm should be made permanent. A temporary move to prevent the spread of misinformation is the subject of heated internal debates, The Times reports. Some staff members argue that a less-divisive feed is worth keeping, even if users spend less time on the platform as a result.

Apple’s security chief faces bribery charge. California prosecutors accused Thomas Moyer of offering 200 iPads, worth a total of about $70,000, to the Santa Clara County sheriff’s office in exchange for four concealed-carry permits for Apple security employees.

Elon Musk leapfrogs Bill Gates as the world’s second-richest person. The Tesla C.E.O. is now worth $128 billion on paper, Bloomberg reports, following a surge in the electric carmaker’s share price. (In January, Mr. Musk was ranked 35th.) Jeff Bezos remains on top, with an estimated $182 billion.

David Dinkins, New York City’s first Black mayor, has died at 93. A Harlem Democrat, Mr. Dinkins was elected by voters hoping for racial unity and a fiscal turnaround for the city, The Times’s obituary notes. But while he helped revive Times Square, he faced growing complaints about budget deficits and his handling of racial violence, and was defeated by Rudy Giuliani in 1993.

Markets begin to unfollow @realDonaldTrump

Unlike his predecessors, President Trump regularly cited the stock market as a real-time gauge of his performance, sending tweets or retweets referencing the markets more than 200 times since taking office (mostly when stocks were going up). He also had a unique ability to move markets with his Twitter feed, making major policy announcements, browbeating companies and otherwise keeping investors on their toes with his unpredictable feed, The Times’s Matt Phillips reports.

His grip on the collective psyche of the markets is receding, but there is still time for more surprises, Matt tells DealBook:

As the end of the Trump administration approaches, investors, money managers and traders are reflecting on a tumultuous, Tweet-battered stint for stocks.

Few complain about the 70 percent return investors have generated since the 2016 vote. But the president’s willingness to wade into markets using the White House megaphone has left many investors — of all political persuasions — ready to turn the page. Some still suspect, however, that Mr. Trump might have a market-rattling surprise up his sleeve before he leaves office on Jan. 20.

“I think he’s narcissistic enough that he may do something crazy to make the stock market go down,” said Barclay Leib, a former Wall Street trader who now runs Sand Spring Advisors, a financial advisory firm. “He would say, ‘Sorry, but you voted me out and here you go. That’s what you get.’”

“You’re remembered for your winners, not your losers. In 10 years, no one is going to remember all the bad stuff at WeWork. All they’ll remember is who made money.”

— Steve Kraus of Bessemer Venture Partners, to Charles Duhigg in “How Venture Capitalists are Deforming Capitalism”

Triple threat?

Three asset management firms — BlackRock, State Street and Vanguard — now control more than $15 trillion in combined assets. Some worry about what this growing concentration of power means for corporate governance, competition and financial market stability, arguing that the “Big Three” should be reined in. But it would take appointing financial regulators with a “high pain threshold,” Graham Steele, director of the Corporations and Society Initiative at Stanford’s business school, told DealBook.

“Time is of the essence,” said Mr. Steele, who is also a senior fellow at the American Economic Liberties Project, the antimonopoly research group behind a new report titled “The New Money Trust.” The pandemic has highlighted how entrenched these money managers have become, as when the Federal Reserve hired BlackRock to manage its emergency bond-buying programs, which purchased E.T.F.s that included funds run by a separate arm of BlackRock. Economies of scale allow index fund managers to offer investments at low (or no) cost to customers, but the seeming inevitability of their success, which builds on itself, also raises competition and conflict-of-interest concerns, Mr. Steele said.

The entire market will be held by index funds by 2030, by one estimate, and if trends continue the current concentration in the passive investment industry might manifest in the asset management sector as a whole. With increased scrutiny of common shareholdings in the European Union, and growing wariness of the merits of scale, some suggest that index funds may soon be treated like Big Tech.

THE SPEED READ

Deals

• York Capital Management, the investment firm founded by Jamie Dinan, plans to wind down its hedge fund, leaving it to manage only internal money. (WSJ)

• McCormick is reportedly near a deal to buy Cholula that would value the hot-sauce brand at around $800 million. (WSJ)

• John Delaney, the former Democratic congressman and presidential candidate, has filed to launch a SPAC, with a fund-raising target of $250 million. (Bloomberg)

Politics and policy

• President-elect Joe Biden will pick Alejandro Mayorkas as the first Latino to lead the Department of Homeland Security, Avril Haines as the first woman to be the director of national intelligence and John Kerry as a new international climate envoy. (NYT)

• Meet WestExec Advisors, the consulting firm that has become a source of several picks for Mr. Biden’s cabinet. (Politico)

• A report by the Commodity Futures Trading Commission into the oil price crash this past April, when futures prices fell below zero, failed to identify a cause, prompting criticism from one of its commissioners. (WSJ)

Tech

• More tech C.E.O.s, including Drew Houston of Dropbox and Douglas Merritt of Splunk, are moving out of the Bay Area as their companies embrace remote working. (The Information)

• New research shows how a handful of social media personalities became “superspreaders” of election-related misinformation. (NYT)

Best of the rest

• “Bill Gates, the Virus and the Quest to Vaccinate the World” (NYT)

• Tony Blinken is Mr. Biden’s choice for secretary of state and a foreign policy expert. He’s also in a band that plays “wonk rock.” (Vice)

• “Who Will Miss the Coins When They’re Gone?” (NYT)

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