NEW YORK, Jan 19 (Reuters) - Janet Yellen, U.S. President-elect Joe Biden's nominee for Treasury Secretary, urged lawmakers on Tuesday to "act big" on the next coronavirus relief package, adding that the benefits outweigh the costs of a higher debt burden.
Yellen's testimony before the Senate Banking Committee came one day before Biden is to be sworn into office, having last week outlined a $1.9 trillion stimulus package proposal. The plan calls for bold investment to jump-start the economy and accelerate the distribution of vaccines to bring the virus under control. read more
The S&P 500 (.SPX) was up Tuesday afternoon after the hearing concluded. The U.S. dollar index was off and U.S. 10-year Treasury note yields eased.
JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET CAPITAL MANAGEMENT, CHICAGO
"She did what she's supposed to do, downplaying the economy saying there's still a lot of unemployment, a lot of economic damage. She's supportive of Biden's stimulus plan."
"The one thing she had to overcome, and I'm not sure she did, was that there's perception that she was a very dovish Fed chair. I'm not sure she was. She did raise rates under her watch."
"She wants to be perceived as level-headed and even-handed and not someone with a perceived bias toward fiscal spending and monetary stimulus."
"I’m not sure the market is reacting to Yellen. She's a known quantity and the market reacted when Biden first announced the appointment."
"I don't think there's any doubt she'll be approved. This is just reaffirming what most investors already perceive. She's really just representing the administration as a cabinet member would."
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“It’s no secret Yellen has been yelling for a big package in accordance with Biden’s $1.9 trillion plan. Obviously, she feels the economy needs this assistance and it’s a question of convincing the Senate. I believe they’ll pass it, we’ll see another big package and that’s a short-term positive but a long-term negative. Of course it’s going to create bigger deficits and that’s going to work negatively on the dollar.
"She will follow what Biden proposes. She brings some valid points, you don’t want the economy to stall. A strong package would psychologically lift the mood of the investor and a good many consumers are going to go out and spend.”
WIN THIN, GLOBAL HEAD OF CURRENCY STRATEGY, BBH, NEW YORK (email)
“We fully expect Yellen will be questioned about Biden’s $1.9 trln stimulus plan. Biden is already getting pushback, with a proposed hike in the federal minimum wage to $15 per hour being met with skepticism from Republican lawmakers. Yellen will reportedly stress the need to “act big” and take advantage of low borrowing rates to address what many view as a K-shaped recovery. Negotiations will surely lead to some changes but overall, we think enough moderate Republicans will support much of this first package.
“Reports suggest that if asked, Yellen will disavow a weak dollar policy whilst affirming commitment to a market-determined exchange rate. She is prepared to say 'The United States doesn't seek a weaker currency to gain competitive advantage. We should oppose attempts by other countries to do so.' Furthermore, officials stress that no one other than Yellen will talk about the dollar. All of these efforts are meant to signal a broad shift in policy from the outgoing Trump administration. If nothing else, markets will no longer be subject to tweet-related volatility and that’s a good thing.”
STEVE ENGLANDER, HEAD, GLOBAL G10 FX RESEARCH AND NORTH AMERICA MACRO STRATEGY, STANDARD CHARTERED BANK, NEW YORK (EMAIL)
“We expect that the Yellen Treasury would choose a weaker dollar over a stronger dollar given the choice, and that competitiveness in tradable goods and services industries would be a major consideration. There may be some realism that global macroeconomic consideration will limit how far the USD can go. However, we think it more likely that Yellen tries to nudge the USD weaker over the medium term, and that she will not advocate strength unless the USD depreciates a lot further than we or markets see as likely."
EDWARD MOYA, SENIOR MARKET ANALYST, OANDA, NEW YORK (email)
“Gold could see added gains if Yellen seems unconstrained about more spending and adding to the engorged balance sheet. Much of Yellen’s dovishness is priced in, but it could still serve as a bullish springboard for gold as investors prepare for another wave of ultra-easiness now that the Fed and Treasury will have improved coordination. Permanent economic scarring to the economy will keep fiscal stimulus coming for the next couple years even as the US economy is clearly on the other side of COVID.“
KIT JUCKES, HEAD OF FX STRATEGY, SOCIETE GENERALE, LONDON (email)
“Treasury Secretary nominee Janet Yellen will take centre stage today, if she uses using a Senate confirmation hearing to argue for fiscal easing. Press comment suggests Janet Yellen intends to argue that the US should ‘go big’ on fiscal easing. Four years ago, markets (and forecasters) underestimated the economic impact of President Trump’s proposed fiscal policy. Consensus growth forecasts for 2018 and 2019 were too pessimistic and the focus, as soon as the French elections were out of the way, quickly shifted to ECB tapering. The euro went up, growth slowed, the US out-performed and the rest, we know. The big difference this time is that the Fed’s commitment to accompany fiscal largesse with super-easy policy, should keep the dollar down even if the economy does well in both absolute and relative terms. However, with a market that is short and bearish of the dollar, I’m still wary of getting over-excited about buying EUR/USD on the back of this morning’s positive risk mood.”
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