WASHINGTON — President-elect Joseph R. Biden Jr. is expected to name top members of his economic team this week, including Cecilia Rouse, a Princeton labor economist, to run the Council of Economic Advisers, and Neera Tanden, the chief executive of the Center for American Progress, to lead the Office of Management and Budget, according to people familiar with the matter.The announcement — which will include Mr. Biden’s decision to name Janet L. Yellen, the former Federal Reserve chair, as Treasury secretary — would potentially culminate in several women in top economic roles, including the first Black woman to lead the Council …
A day after the Trump administration effectively acknowledged the election of Joseph R. Biden Jr., investors showed their relief by pushing the two major stock market indexes to all-time records on Tuesday.It was a welcome party of sorts for Mr. Biden, but what investors were really embracing was the end of uncertainty. President-elect Biden has vowed to push for more stimulus to bolster the economy. His selection for Treasury secretary, Janet L. Yellen, is well known from her days as Federal Reserve chair. And several new coronavirus vaccine candidates mean that the pandemic could be under control in the …
WASHINGTON — Janet L. Yellen’s expected nomination as Treasury secretary will place the former Federal Reserve chair into a critical role overseeing President-elect Joseph R. Biden Jr.’s economic and national security agenda at an agency that has increasingly become a center of power.While Ms. Yellen’s views on monetary policy are well known from her time leading the central bank, her perspective on a range of issues that are part of the Treasury Department’s portfolio is less known.As Treasury secretary, Ms. Yellen will be the Biden administration’s chief economic diplomat and will face the challenge …
WASHINGTON — Janet L. Yellen became an economist at a time when few women entered the profession and fewer still rose in a male-dominated environment. She is now poised to become the first female Treasury secretary and one of few people to ever have wielded economic power from the White House, the Federal Reserve and the president’s cabinet.
Her expected nomination would come as rebuilding a U.S. economy battered by the coronavirus pandemic and saddled with high unemployment presents a central challenge for President-elect Joseph R. Biden Jr.’s administration.
While Ms. Yellen is not the type of firebrand nominee some progressives might have hoped for — she has warned that the United States is borrowing too much money, a fact that some liberals count against her — she has paid consistent, careful attention to inequality and labor market outcomes, even when doing so earned her backlash from lawmakers.
As the chair of the Federal Reserve from 2014 to 2018, Ms. Yellen also oversaw an extremely slow set of interest rate increases as she and her colleagues tested whether unemployment could fall further without leading to higher prices. Her patience drew criticism from inflation-wary economists at the time, but the policies laid the groundwork for a strong labor market and a record-long expansion that drove unemployment to its lowest rate in 50 years before the pandemic turned the world upside down.
Senator Elizabeth Warren of Massachusetts, one of the most prominent progressive Democrats in Congress, wrote on Twitter that Ms. Yellen “would be an outstanding choice for Treasury Secretary.”
But she faces a steep challenge: As Treasury secretary, Ms. Yellen will be at the forefront of navigating the economic fallout created by a pandemic that continues to inflict damage. While growth is recovering from earlier coronavirus-related lockdowns, infections are climbing and local governments are restricting activity again, most likely slowing that rebound.
Ms. Yellen has been a clear champion of continued government support for workers and businesses, publicly warning that a lack of aid to state and local governments could slow recovery, much as it did in the aftermath of the Great Recession, when Ms. Yellen was leading the Fed.
“While the pandemic is still seriously affecting the economy, we need to continue extraordinary fiscal support,” she said in a Bloomberg Television interview in October. She called fiscal support early in the crisis “extremely impressive” but noted that key provisions had lapsed.
Unlike the independent Fed, Ms. Yellen as Treasury secretary would find herself in a much more political role — one that is likely to require negotiating with a Republican-controlled Senate. With Mr. Biden expected to push for additional economic aid, Ms. Yellen would be central to brokering a stimulus deal in a politically divided Congress that has so far failed to agree on another round of aid.
Ms. Yellen declined to comment on her expected nomination, which was reported earlier by The Wall Street Journal.
She would be the first woman to hold a job that has been dominated by white men — like Alexander Hamilton — throughout its 231-year history and would have held the government’s top three economic jobs, including leading the White House Council of Economic Advisers during the Clinton administration.
A former academic who taught at the University of California, Berkeley, Ms. Yellen was also the president of the Federal Reserve Bank of San Francisco, a Fed governor and the Fed vice chair before becoming the central bank’s first female chair.
Ms. Yellen said she wanted to be reappointed when her term as Fed chair ended in 2018, but President Trump, eager to install his own pick, decided against renominating her.
By replacing Ms. Yellen, Mr. Trump broke with precedent. The previous three Fed chairs had been reappointed by presidents of the opposite political party.
Instead, Mr. Trump chose Jerome H. Powell, the Fed’s current chair, with whom Ms. Yellen could soon be working closely as Treasury secretary. The two still talk, and Ms. Yellen has consistently praised Mr. Powell’s performance at the Fed, suggesting they would have a good relationship.
Born in Brooklyn in 1946, Ms. Yellen was raised in Bay Ridge, a middle-class neighborhood across the waterfront from Staten Island. Her mother was a teacher who stayed home to raise Ms. Yellen and her brother. Her father was a family doctor. She was both valedictorian and editor of the newspaper at her high school.
She attended Brown University and went on to receive a doctorate from Yale. In an interview in 2013 with Simon Bowmaker, an economics professor at New York University, Ms. Yellen explained her rationale for becoming an economist, saying she had always liked the rigor of math but economics offered something more.
“I care about people,” she said. “I discovered that economics was of enormous relevance to our lives and had the potential to make the world a better place.”
She met her husband, George A. Akerlof, an economist who is now a Nobel laureate, while working in a research position at the Fed in 1977.
Ms. Yellen has spent her post-Fed years at the Brookings Institution, occupying an office close to Ben S. Bernanke, who preceded her as Fed chair, and other former Fed officials. They call their corridor the “F.O.M.C., Former Open Market Committee,” a play on the central bank’s rate-setting Federal Open Market Committee.
Ms. Yellen is a Keynesian economist, which means she believes markets have imperfections and sometimes need to be rerouted or kick-started by government intervention.
As Fed chair, she gave important speeches — including one at the storied annual conference in Jackson Hole, Wyo. — advocating continued watchfulness and wariness when it came to financial overhauls instituted after the 2008 crisis. She has struck a concerned tone about regulatory rollbacks under the Trump administration.
“It is certainly appropriate to simplify regulations that impose unnecessary burdens, particularly on small community banks,” she said in 2019. “But I’m greatly concerned that the regulatory work needed to address financial stability risk has stalled. There have been some worrisome reversals.”
She is relatively moderate on many topics, including trade. Mr. Akerlof recalled in a biographical note in 2001 that when he met her: “Not only did our personalities mesh perfectly, but we have also always been in all but perfect agreement about macroeconomics. Our lone disagreement is that she is a bit more supportive of free trade than I.”
Ms. Yellen has been a major influence on leading officials at the Fed. John C. Williams, who worked for her in San Francisco, now leads the Federal Reserve Bank of New York. Mary C. Daly, who now leads the San Francisco Fed, cites Ms. Yellen as a key mentor.
That, along with Ms. Yellen’s experience working with Mr. Powell, could help facilitate the kind of close relationship needed between the Fed and Treasury, which are collaborating on a variety of crisis response programs.
Henry M. Paulson Jr., who served as Treasury secretary under President George W. Bush, praised the selection. He said Ms. Yellen “will have a tough job ahead of her, but she has the experience, talent, credibility and relationships with members of Congress on both sides of the aisle to make a real difference.”
While the other leading contenders for the job also had extensive experience that spanned fiscal and monetary policy, Ms. Yellen was seen as well placed to make it through Senate confirmation, even if Republicans maintain control of the chamber.
Lael Brainard, another top candidate for the role, is the only remaining Fed governor from the Democratic Party on the seven-member board, which currently has two open slots. She might have been difficult to replace at the Fed: Nominees have been hard to confirm over the past decade, and the Senate may remain under Republican control.
While leading the Fed, Ms. Yellen at times had a testy relationship with congressional Republicans. In one instance, Representative Mick Mulvaney, then a South Carolina Republican, said Ms. Yellen was overstepping her boundaries by talking about inequality.
“You’re sticking your nose in places that you have no business to be,” Mr. Mulvaney said at a hearing in 2015.
But in many ways, those conflicts underline how much Washington has changed over the past five years. Fed officials now regularly talk about inequality, entirely unchallenged. The central bank has formalized policies much like Ms. Yellen’s patient approach to interest rate-setting as its official stance, which it explicitly hopes will foster more inclusive growth.
“It seems like a pretty subtle shift to most normal human beings,” Ms. Yellen said of that move. But “most of the Fed’s history has revolved around keeping inflation under control. This really does reflect a decisive recognition that we’re in a very different environment.”
Reporting was contributed by Michael D. Shear, Jim Tankersley, Alan Rappeport and Thomas Kaplan.
WASHINGTON — Treasury Secretary Steven Mnuchin broke sharply with the Federal Reserve this week, choosing to end a variety of programs aimed at helping markets, businesses and municipalities weather the pandemic and asking the central bank to return the funds earmarked to support those efforts.
Mr. Mnuchin said his decision was driven by a deference to what he believed was Congress’s intent when it allocated the funding, a desire to repurpose the money toward better uses and a belief that markets no longer needed them. But his actions, which will limit the incoming Biden administration’s ability to use those programs at scale, seem driven by politics.
“The law is very clear,” Mr. Mnuchin said in an interview on CNBC Friday. He defended his decision and suggested that the programs were no longer needed, because market conditions “are in great shape.”
But that view is not shared by the Fed, which quickly issued a statement expressing disappointment with the decision, calling the economy “still-strained and vulnerable.” It is worth noting that Mr. Mnuchin only publicly took the position that Congress meant for the programs to end after Dec. 31 once it became clear that President Trump had lost the election to Joseph R. Biden Jr.
By ending the programs — which have been funneling loans to medium-sized businesses and backstopping municipal and corporate bond markets — Mr. Mnuchin is taking away a source of economic support just as the new administration comes into office and as rising virus cases dog the recovery. By asking the Fed to return the money that enables the emergency efforts, he could make it harder for Democrats to restart them at a large scale and on more generous terms.
Chair Jerome H. Powell indicated the Fed would return the funds, in a letter to Mr. Mnuchin on Friday afternoon.
“It’s not just closing the store down for Biden,” said Ernie Tedeschi, a policy economist at Evercore ISI. “It’s burning the store down.”
Mr. Biden’s transition team criticized the move as trying to hamstring his ability to help the economy.
“The Treasury Department’s attempt to prematurely end support that could be used for small businesses across the country when they are facing the prospect of new shutdowns is deeply irresponsible,” Kate Bedingfield, a spokeswoman for the transition, said in a statement.
Mr. Mnuchin’s decision came as a surprise to Mr. Trump, who was alerted to the decision shortly before Mr. Mnuchin’s letter was released on Thursday and who, on Friday morning, expressed some concern that the move could have a negative impact on the stock market, according to a person familiar with the matter who was not authorized to speak publicly. Asked if Mr. Trump had instructed Mr. Mnuchin to end the programs, Mr. Mnuchin’s spokeswoman said that it was “solely a Treasury decision based on what the law and congressional intent required.”
Here is a rundown of how these programs work, why Mr. Mnuchin says he is killing them, and why his arguments leave unanswered questions.
The programs are a collaboration.
Mr. Mnuchin is pulling the plug on a set of Fed emergency lending programs, which the central bank can use to keep credit flowing in times of crisis. After the 2008 recession, Congress insisted that the Treasury secretary sign off on such efforts.
The Fed is loath to take credit losses, so Treasury has been providing a layer of money to cover any loans or purchases that go bad. It initially used the Exchange Stabilization Fund, a pot of unused money. But in March, Congress beefed up the Treasury’s capacity.
Mr. Mnuchin and lawmakers earmarked $454 billion to support Fed lending when they cut a deal on a government pandemic response package. The Fed can make money out of thin air, and it only needs a little bit of backing — $1 of insurance can be turned into as much as $10 in bond buying or business loans. The programs offered a big potential bang for the government’s buck.
Mr. Mnuchin ultimately earmarked $195 billion for specific loan programs. Not much of that capacity has been used. Some programs calmed market conditions merely by reassuring investors. The small and medium-sized business loan program had restrictive terms.
When Mr. Mnuchin said Thursday that he would end the five appropriation-backed programs at the end of 2020, he asked the Fed to give back all but $25 billion, which he is leaving to support already-made loans and bond purchases.
The law is not ‘clear,’ as Mr. Mnuchin said.
Mr. Mnuchin has said “it is very clear in the law” that the allocation-backed programs must end Dec. 31. That is not true.
The law states that the Treasury should not hand out money from its $454 billion pot after the end of 2020 — but it allows already-dedicated funds to remain available. Because the Treasury had handed hundreds of billions of dollars in insurance money to the Fed, the central bank theoretically has lots of capacity left to make loans and buy bonds.
The Fed’s lawyers have interpreted the law to mean that they can keep the programs running into 2021, supported by the existing Treasury backstop, as the central bank’s statement on Thursday indicated.
Mr. Mnuchin himself had previously suggested that the programs could be extended past the end of the year, writing in an October letter that the decision would hinge on market conditions.
A Treasury spokeswoman said on Friday that Mr. Mnuchin had always believed Congress meant for the funding to sunset, and had planned to use Exchange Stabilization Fund money — plus the $25 billion that he is leaving with the Fed to cover existing loans — to extend the programs if needed.
That logic is hard to follow given Mr. Mnuchin’s belief that the law prevents new Fed lending backed by Congress’s money after Dec. 31. If that’s the case, it should also prevent new lending against the $25 billion, which comes from the same congressional pot, said Peter Conti-Brown, a lawyer and Fed historian at the University of Pennsylvania.
Congress can’t repurpose the money for free.
Mr. Mnuchin also suggested that taking back the earmarked money would allow Congress to reroute it to other purposes in ways that “won’t cost taxpayers any more money.”
But the Congressional Budget Office, in assessing the budget impact of the money dedicated to Fed programs, found it to be nearly free of cost. The idea was that the loans the money backed would eventually be returned, and fees and interest earnings would cover any expenses. So if the money is clawed back and repurposed for spending — not lending — it would add toward the deficit for accounting purposes.
Market distortions have always been a concern.
Top Republicans have suggested that leaving the programs operational for too long could distort markets, which is a genuine concern with such backstops. In his letter announcing his intent to close the programs, Mr. Mnuchin noted that normal market conditions prevail.
It’s true that corporate bond issuance has been rapid and states and localities are able to fund themselves at low rates. But virus cases are also spiking, suggesting that conditions could worsen and Fed backstops might again be needed.
Over the summer, Mr. Mnuchin agreed to extend the programs until Dec. 31 at a time when coronavirus infections were much lower than they are today, markets were functioning well, and companies were issuing bonds at breakneck speed.
Democrats say the move was political. Republicans applaud it.
Treasury’s move to claw back the funding limits Mr. Biden. The Fed and the next Treasury secretary can use the Exchange Stabilization Fund to back up bond purchases and business lending.
But it contains much less money than the government would have had with the congressional appropriation. That could hamper a goal that had been percolating among Democrats: to restart the programs, make them more generous and use them as a backup option if additional stimulus was tough to get through Congress.
Senator Mitch McConnell of Kentucky, the majority leader, said the request to end the programs and return the money was “fully aligned with the letter of the law and the intent of the Congress.”
Democrats reacted with outrage.
“It is clear that Trump and Mnuchin are willing to spitefully destroy the economy and make it as difficult as possible for the incoming Biden Administration to turn this crisis around and lead the nation to a recovery,” Representative Maxine Waters of California said in a letter.
Jim Tankersley contributed reporting.
WASHINGTON — Treasury Secretary Steven Mnuchin said he does not plan to extend several key emergency lending programs beyond the end of the year and asked the Federal Reserve to return the money supporting them, a decision that could hinder President-elect Joseph R. Biden Jr.’s ability to use the central bank’s vast powers to cushion the economic fallout from the virus.
Mr. Mnuchin on Thursday said he would not continue Fed programs, including ones that support the markets for corporate bonds and municipal debt and one that extends loans to midsize businesses. The emergency efforts expire at the end of 2020, but investors had expected some or all of them to be kept operational as the virus continues to pose economic risks.
The pandemic-era programs are run by the Fed but use Treasury money to insure against losses. They have provided an important backstop that has calmed critical markets since the coronavirus took hold in March. Removing them could leave significant corners of the financial world vulnerable to the type of volatility that cascaded through the system as virus fears mounted in the spring.
By asking the Fed to return unused funds, Mr. Mnuchin could prevent Mr. Biden’s incoming Treasury secretary from quickly restarting the efforts at scale in 2021.
“The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy,” the central bank said in a statement.
The emergency programs were backed by $454 billion that Congress appropriated in March as part of a broader pandemic response package. Because of the way the Fed’s emergency lending powers work, Jerome H. Powell, the Fed chair, needs the Treasury secretary’s signoff to make major changes to the programs’ terms. Extending the end date counts as one of those changes that need approval.
The decision to close the various programs and remove the funding appeared to come as a surprise to the Fed, which received a letter announcing the Treasury’s desire to claw the money back on Thursday afternoon.
“I am requesting that the Federal Reserve return the unused funds to the Treasury,” Mr. Mnuchin said in the letter. He noted that he had been “personally involved in drafting the relevant part of the legislation” and believed it was Congress’s intent that the programs stop at the end of the year.
Earlier this month, Mr. Powell had said the central bank and Treasury were just beginning to discuss whether to extend the programs.
Mr. Mnuchin did agree to extend other emergency loan programs that are not backed by the congressional appropriation, including ones that service the short-term market for corporate debt, one for money market funds, and one that backstops government small-business loans.
The Fed avoids taking credit losses when extending loans, and throughout the pandemic crisis it has asked for Treasury backup for its riskier programs. If it returns any unused money that the Treasury has already dedicated to support the programs, as Mr. Mnuchin requested, the Biden administration will have less financial backup to restart the programs.
That’s because the congressional appropriation — $195 billion of which has been earmarked to specific Fed programs — cannot be used to make new loans after the end of the year. But while the law prohibits the Treasury from putting money into the Fed’s facilities after 2020, it does not obviously prevent the Fed from using already-earmarked Treasury funding to insure its own loans and bond purchases.
“The loans, loan guarantees and investing that the Treasury does is the applicable language,” said Peter Conti-Brown, a lawyer and Fed historian at the University of Pennsylvania. He said that while it may be possible to read the law as preventing new Fed loans, that is not the “obvious reading.”
The Fed and the next Treasury secretary do have an alternative to continue the programs: They could use money in the Treasury’s Exchange Stabilization Fund, which still contains about $74 billion in uncommitted funds, to back the programs. It is unclear exactly how much of the fund can be used, but the programs have not to date needed substantial capacity.
Mr. Mnuchin’s move could leave the government with fewer options to help the economy just as the new administration takes office.
“Treasury is right that a limited set of objectives have been achieved in terms of stabilizing bond markets,” Jason Furman, a prominent Democratic economist, said on Twitter. “But what is the downside to continuing them as insurance against worse developments?”
Many of the Fed’s programs, including one that buys state and local debt and another that encourages banks to lend to small- and midsize businesses, have been lightly used. But that is because they were designed as backstops — meaning that borrowers would likely only use them when times are bad.
And it is Mr. Mnuchin himself who has been conservative in setting the program’s terms. With a more permissive head at the Treasury, the terms could have been made more generous.
In fact, Democrats had been eyeing both the municipal bond-buying program and the Main Street lending effort for small- and medium-size businesses as potential backup options if it proves difficult to pass additional government relief. Without them, businesses and state and local governments would have one less potential source of help.
With coronavirus cases on the rise, the economy may sour again, making the programs more necessary. As recently as Tuesday, Mr. Powell warned of the potential for economic scarring and said that the economic recovery had “a long way to go.” But Treasury officials have expressed optimism that the economy is poised for a steady rebound and that the likely rollout of a vaccine by the end of the year further improves the economic picture.
Senator Patrick J. Toomey, Republican of Pennsylvania, who had been pushing Mr. Mnuchin to end the programs, applauded the decision.
“These temporary facilities helped to both normalize markets and produce record levels of liquidity,” Mr. Toomey said in a statement. “Congress’s intent was clear: These facilities were to be temporary, to provide liquidity, and to cease operations by the end of 2020.”
Treasury’s move prompted concern from Democrats, some of whom said the Fed should simply refuse to return the money — a route it is unlikely to take.
Bharat Ramamurti, a Democrat who sits on the congressional oversight body in charge of reviewing the various Fed and Treasury programs, suggested on Twitter that, legally, the Fed was under no obligation to give back the funds.
“Under its contracts with Treasury, the Fed can and should reject the request,” he said. “While Secretary Mnuchin claims congressional intent was to halt all new loans at year-end, the text of the CARES Act doesn’t say that. At a minimum, the Fed can continue to make loans using the $195 billion in equity Treasury has already committed.”
Emily Cochrane contributed reporting.
WASHINGTON — When the Federal Reserve voted to “tailor” post-crisis financial regulations for all but the largest banks in October 2019, Gov. Lael Brainard cast the lone “no” vote.
At the long oval table in Fed’s board room, Ms. Brainard laid out — point by detailed point — why she thought the changes risked leaving relatively big banks with too little oversight. It was not an unusual dissent.
Ms. Brainard, a leading contender to be President-elect Joseph R. Biden Jr.’s Treasury secretary, has opposed the Fed’s regulatory changes 20 times since 2018. As the sole Democrat left at the Fed board in Washington, Ms. Brainard has used her position to draw attention to efforts to chisel away at bank rules, creating a rare public disagreement at the consensus-driven central bank.
Yet Ms. Brainard’s position has not relegated her to the role of Fed gadfly. Jerome H. Powell, the Fed’s chair, often praises Ms. Brainard’s intellect in private conversations and has placed her in key roles at the central bank, including tapping her to play a major part in devising and overseeing the Fed’s emergency lending programs. Ms. Brainard joined calls with staff members and Treasury Secretary Steven Mnuchin, the Fed’s partner in planning those efforts, 21 times in April alone.
Mr. Powell, who was appointed by President Trump, even sided with her over the Republican comptroller of the currency when Ms. Brainard argued that a key community banking rule was being rewritten too hastily and based on too little data.
Ms. Brainard’s data-driven approach and quiet persistence have allowed her to maneuver effectively even while staking out a minority position at the Fed. That skill could make her an attractive pick for the Treasury’s top job. So could her experience as a former Treasury official who played a leading role in European debt crisis and Chinese currency deliberations. Negotiating chops would come in handy as the new administration tries to cut pandemic relief deals with what could be a Republican Senate.
But her status as a Washington insider brings its own vulnerabilities. Part of the progressive wing of the Democratic Party paints Ms. Brainard as a centrist who has been timid on climate change and soft on China — too much the good soldier, too little the maverick.
Ms. Brainard has been rumored as a Treasury-secretary-in-waiting for years, and her friends and former colleagues have been out in force praising her qualifications, suggesting that she wants the job. Yet the competition is stiff.
Others rumored to be under consideration include Sarah Bloom Raskin, a former Fed governor who served as deputy Treasury secretary during the Obama administration, and Janet L. Yellen, the former Fed chair. Also circulating on informal lists are Roger Ferguson, the president and chief executive of the retirement financial manager TIAA, who was the first Black vice chair of the Fed; Mellody Hobson, the co-head of Ariel Investments, an asset manager; and Raphael Bostic, the president of the Federal Reserve Bank of Atlanta.
Any of those choices would bring a significant change to the Treasury Department, which has been run by a white man throughout its 231-year history.
No decisions have been made yet, several people close to the Biden transition team said. But Ms. Brainard’s position in Washington’s establishment, and her centrist label, could help her chances of winning confirmation if Republicans retain control of the Senate.
Ms. Brainard, 58, has been steeped in international relations from childhood. The daughter of a Foreign Service officer during the Cold War, she was raised in Communist Poland and Germany before reunification. She wrote her senior undergraduate thesis on utopia, dystopia and social planning — motivated, in part, by her childhood — and then went on to an economics doctorate at Harvard University.
An early foray into government policy came in the 1990s, when she worked for the National Economic Council during the Clinton administration. She then served as the Treasury’s under secretary for international affairs under President Barack Obama. At the Treasury, Ms. Brainard forged a reputation as a perfectionist and a savvy negotiator as she tried to pressure China to allow market forces to guide its currency, and to persuade Europe to pursue a more ambitious economic rescue during the depths of its debt crisis.
“Her breadth of knowledge is just really wide,” said Paige Gebhardt Cognetti, the mayor of Scranton, Pa., and Ms. Brainard’s former aide at the Treasury. “When she sits down, it’s like the U.S. is there, to negotiate hard, but also to listen.”
Ms. Brainard was always “the most prepared person in the room” during her Treasury years, said Austan Goolsbee, who was working as an economic adviser to Mr. Obama at the time.
Colleagues recall her perched at a meeting table in the Treasury Department during Chinese Strategic and Economic Dialogue meetings, surrounded by thick books of briefing material that she had evidently read in full. When she entered a room for such negotiations, several said, the atmosphere would shift. Nobody questioned that she meant business.
Mr. Obama nominated Ms. Brainard to the Fed in 2014 — a posting that some saw as a temporary stop on her way to Treasury secretary. She was floated as a likely candidate during Hillary Clinton’s 2016 presidential run. Ms. Brainard had donated the $2,700 personal maximum to Mrs. Clinton’s campaign, drawing scrutiny and criticism to the politically independent Fed.
But after Mrs. Clinton lost and Mr. Trump replaced Ms. Yellen, Ms. Brainard found herself as the last Democrat sitting on the powerful board.
Her moves to counter the Trump administration’s regulatory rollbacks have earned praise from progressive groups. But it has not been enough to mollify their concerns that she was too easy on China during her time at the Treasury. They point to the Obama administration’s decision not to label China a currency manipulator while she was the under secretary for international affairs.
“It was her bailiwick and nothing happened,” said Jeff Hauser, the founder and director of the Revolving Door Project. While Mr. Hauser would make it on the record, his complaint is echoed by a small but vocal group on the more liberal side of the Democratic Party.
People who were privy to the negotiations said such criticisms were unfair, noting that Ms. Brainard pushed hard to secure commitments against the devaluation of China’s currency behind the scenes. She also lacked unilateral power to name China a manipulator — while she could weigh in, that decision ultimately falls to the Treasury secretary and the president. But progressives have argued that Ms. Brainard should have pushed publicly for the Obama administration to take a louder stance.
Mr. Hauser said that if she is nominated, it is imperative that her husband, the former Obama-era diplomat Kurt Campbell, divest himself from the Asia Group, the Asia-Pacific-focused advisory firm that he founded. While it would be legal for him to retain his position, it could arguably put him in place to profit from his wife’s high-ranking government role.
Despite her decades in Washington, Ms. Brainard is hardly a household name. She has kept a relatively low media profile at the Fed. She rarely discusses her visits to Capitol Hill, and her community outreach trips often include press-free stops. She did not agree to be interviewed for this profile.
The quiet approach lines up with her low-key and matter-of-fact demeanor, based on more than a dozen interviews with former colleagues who have worked with her across government agencies. During Europe’s rapidly escalating debt crisis, she and an aide took a flight to Brussels before they had time to firmly establish meetings with European finance ministries, setting them up over espressos at the airport coffee shop.
Maintaining a degree of privacy could turn out to have been a good strategy. Ms. Brainard has managed to remain relevant even as the Democratic Party evolves to become more skeptical of globalism and free markets.
But Ms. Brainard can be outspoken when it suits her goals. In addition to criticizing the Fed’s deregulatory bent, she has made speeches and statements about climate risks to the financial system in recent months and years — countering a liberal complaint that she has not been aggressive enough in that domain. The Fed assessed climate change risks in detail in a financial stability report this week, a first for the twice-yearly document, and she put out a statement alongside the release.
“Climate change poses important risks to financial stability,” she wrote, and addressing such concerns “is vitally important.”
WASHINGTON — If he wins the presidency, Joseph R. Biden Jr. will inherit an economy struggling to recover from its steepest plunge in decades. His economic team will need to help workers and businesses survive a pandemic winter, while developing policies to address the racial and income inequalities the crisis has exacerbated in the labor market.
Assembling that team would force Mr. Biden to balance competing impulses. He wants to surround himself with aides who have experience battling past downturns — a talent pool that is overwhelmingly white, male and centrist. But he also wants to stock his administration with advisers who represent the racial, gender and ideological diversity of the nation and his party better than previous administrations.
Allies inside and outside Mr. Biden’s sprawling network of informal economic advisers say there are signs that, even as Mr. Biden looks to familiar names from his White House years with President Barack Obama, his potential administration is on track to include far more economists of color, women and progressive economic thinkers than Mr. Obama’s initial team, which was stocked with establishment white male economists.
“You’d like a team that has kind of been to war,” said Stephanie Kelton, an economics professor at Stony Brook University who served on a task force when Mr. Biden became the nominee but is not currently an adviser to the campaign.
But Ms. Kelton, an increasingly important voice on the progressive side of the party, said it’s important to find people who realize that mistakes were made after the 2008 recession, because “it took seven years to claw back the jobs that were lost. We can’t afford that again.”
Robert E. Rubin, a former Treasury secretary under President Bill Clinton, who remains a leading voice among centrist Democrats, said Mr. Biden would be facing “the most daunting set of challenges that any president has faced since F.D.R. He needs people who are experienced, who are well equipped to deal with that.”
The nation is mired in a so-called K-shaped recovery in which some people and businesses have thrived as companies shifted to remote work and consumer demand skewed toward goods over services. Other workers have fallen into prolonged unemployment and a wave of small businesses have shuttered or are close to doing so. Mr. Biden’s allies have stressed that he will need to address that damage should he win the presidency.
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“What I think is important is to recognize that this is not your grandfather’s type of recession,” said Senator Ron Wyden of Oregon, the top Democrat on the finance committee. “There are two economies — Main Street getting hammered, Wall Street sky high.”
Perhaps the most important economic role to fill will be that of Treasury secretary, since that person will serve as a conduit between the White House, the Federal Reserve and Congress, along with playing a key role in diplomacy and financial regulation. During the financial crisis, the Treasury secretary played an outsize role in steering the response, first under Henry M. Paulson during the George W. Bush administration and then under Timothy F. Geithner during the Obama years.
Mr. Biden appears likely to tap a woman for the job — which would be a first in the Treasury Department’s 231-year history. Lael Brainard, a Federal Reserve governor and former Treasury official, tops many Biden advisers’ lists of possible future secretaries. Ms. Brainard, who served as the Treasury’s under secretary for international affairs during the Obama administration, has extensive recent experience in financial regulation and a proven track record of working well with the Fed chair, Jerome H. Powell.
Still, her background in trade could prove to be a liability with more progressive members of the party. While at the Treasury, Ms. Brainard was reluctant to take a hard line on currency manipulation, for instance when it came to the weak Chinese yuan in the early 2010s. That was an unpopular stance among some left-leaning senators worried about the competitive threat cheap imports from abroad posed to domestic manufacturers.
Other women also make the unofficial lists circulating, including Senator Elizabeth Warren of Massachusetts, who enjoys a lot of support among progressives. Sarah Bloom Raskin, formerly at the Treasury and Fed, is frequently discussed, as is Janet L. Yellen, the former Obama-era Fed chair.
Another name floating around the Biden camp is Roger W. Ferguson Jr., a former Fed vice chairman who is now president of the financial manager TIAA. Mr. Ferguson, the only Black person to ever serve in that high-ranking Fed position, has experience confronting crises — he played the central role in the Fed’s response to the Sept. 11, 2001, terrorist attacks because its chair, Alan Greenspan, was out of the country at the time.
Mr. Biden will also need to tap White House economic advisers who, along with the Treasury secretary, will help develop whatever stimulus package his administration tries to push through Congress. Perhaps as important as whom he chooses is whether they can align on a plan to save the economy. Disagreements among Mr. Obama’s top economic advisers in 2009 led to a smaller stimulus package than might have otherwise been put forward during the Great Recession, in part because of concerns about the impact on the federal deficit.
Among the top contenders for senior economic roles are Heather Boushey, co-founder of the Washington Center for Equitable Growth, and Jared Bernstein, who served as Mr. Biden’s top economic adviser during the Obama administration and is now at the Center on Budget and Policy Priorities.
Both have advised the Biden campaign from the outside, as part of a small group of economists Mr. Biden turns to for daily briefings and policy recommendations. That group includes Ben Harris, an economist at Northwestern University’s Kellogg School of Management who succeeded Mr. Bernstein as Mr. Biden’s chief economist, and who now plays a sort of clearinghouse role in economic policymaking for the Biden campaign. He could land a White House job as well.
Several other veterans of the Obama years also appear to be in the running for top economic jobs. Most of them are white men, including Austan Goolsbee, a former chairman of Mr. Obama’s Council of Economic Advisers; Gene Sperling, who led the National Economic Council for Mr. Obama and Mr. Clinton; and Jeffrey Zients, who succeeded Mr. Sperling and who is a co-chairman of Mr. Biden’s transition team.
People in the Biden orbit are also eyeing veterans of the White House or the Fed who are not white men, including Lisa D. Cook, who served as chief economist for the Council of Economic Advisers under Mr. Obama; Raphael Bostic, who heads the Federal Reserve Bank of Atlanta, making him the first Black person to ever hold a regional Fed presidency; and Mary C. Daly, the president of the Federal Reserve Bank of San Francisco.
Mr. Biden may also have an opportunity to add staff to the Fed, which will continue to play a key role in supporting the labor market and economic recovery, potentially in close collaboration with the Treasury. While President Trump has nominated Judy Shelton and Christopher Waller for the two open slots, it is unclear whether they will win confirmation before the congressional term ends in January. Another Fed governor slot could open if Ms. Brainard is moved to the Treasury.
Mr. Biden would also need to make decisions about the Fed’s top spot, though not immediately. Mr. Powell’s tenure as head of the central bank does not end until early 2022. The Fed’s vice chair for supervision, a powerful position that influences banking regulation, will be up for replacement in October 2021.
Across the various roles, labor groups and the progressive wing of the Democratic Party are pushing Mr. Biden to elevate economic thinkers who are more liberal, and more focused on racial inequality, than previous Democratic administrations — citing the outsize damage the pandemic recession has dealt to women and to Black and Hispanic workers. They also want advisers who are not afraid to spend money on programs to help bring about economic equality — even if it means adding to the budget deficit.
“He’s going to have to have some people who are very good and credible at handling all of the extreme forms of inequality we’ve seen pop in from this, and can get the labor market back up and can especially undo the harm that’s been disproportionate on women and minorities,” said William E. Spriggs, the chief economist at the A.F.L.-C.I.O., who was part of a group of several hundred economic policy experts who prepared policy recommendations for Mr. Biden’s campaign this year.
“I think they get it,” Mr. Spriggs said. “But you know, personnel are chosen sometimes on the basis of other things.”
Ana Swanson contributed reporting.
WASHINGTON — As companies furloughed millions of workers and stock prices plunged through late March, Treasury Secretary Steven Mnuchin offered a glimmer of hope: The government was about to step in with a $4 trillion bazooka.
The scope of that promise hinged on the Federal Reserve. The relief package winding through Congress at the time included a $454 billion pot of money earmarked for the Treasury to back Fed loan programs. Every one of those dollars could, in theory, be turned into as much as $10 in loans. Emergency powers would allow the central bank to create the money for lending; it just required that the Treasury insure against losses.
It was a shock-and-awe moment when lawmakers gave the package a thumbs up. Yet in the months since, the planned punch has not materialized.
The Treasury has allocated $195 billion to back Fed lending programs, less than half of the allotted sum. The programs supported by that insurance have made just $20 billion in loans, far less than the suggested trillions.
The programs have partly fallen victim to their own success: Markets calmed as the Fed vowed to intervene, making the facilities less necessary as credit began to flow again. They have also been undercut by Mr. Mnuchin’s fear of taking credit losses, limiting the risk the government was willing to take and excluding some would-be borrowers. And they have been restrained by reticence at the central bank, which has extended its authorities into new markets, including some — like midsize business lending — that its powers are poorly designed to serve. The Fed has pushed the boundaries on its traditional role as a lender of last resort, but not far enough to hand out the sort of loans some in Congress had envisioned.
Lawmakers, President Trump and administration officials are now clamoring to repurpose the unused funds, an effort that has taken on more urgency as the economic recovery slows and the chances of another fiscal package remain unclear. The various programs are set to expire on Dec. 31 unless Mr. Mnuchin and Jerome H. Powell, the Fed chair, extend them.
Here’s how that $454 billion failed to turn into $4 trillion, and why the Fed and Treasury are under pressure to do more with the money.
‘Emergency lending’ required backup.
The Fed can lend to private entities to keep markets functioning in times of stress, and in the early days of the crisis it rolled out a far-reaching set of programs meant to soothe panicked investors.
But the Fed’s vast power comes with strings attached. Treasury must approve of any lending programs it wants to set up. The programs must lend to solvent entities and be broad-based, rather than targeting one or two individual firms. If the borrowers are risky, the Fed requires insurance from either the private sector or the Treasury Department.
Early in the crisis, the Treasury used existing money to back market-focused stabilization programs. But that funding source was finite, and as Mr. Mnuchin negotiated with Congress, he pushed for money to back a broader spate of Fed lending efforts.
The central bank itself made a major announcement on March 23, as the package was being negotiated. It said it was making plans to funnel money into a wide array of desperate hands, not just into Wall Street’s plumbing. Officials would set up an effort to lend to small and medium-size businesses, the Fed said, and another that would keep corporate bonds flowing. It would go on to expand that program to include some recently downgraded bonds, so-called fallen angels, and to add a bond-buying program for state and local governments.
That $454 billion was slightly random.
Congress allocated $454 billion in support of the programs as part of the economic relief package signed into law on March 27. When the Congressional Budget Office estimated the budget effects of that funding, it did not count the cost toward the federal deficit, since borrowers would repay on the Fed’s loans, and fees and earnings should offset losses.
Mr. Mnuchin and congressional leaders did not settle on that sum for a very precise economic reason, a senior Treasury official said, but they knew conditions were bad and wanted to go big.
Overdoing it would cost nothing, and the size of the pot allowed Mr. Mnuchin to say that the partners could pump “up to $4 trillion” into the economy.
It was like nuclear deterrence for financial markets: Promise that the government had enough liquidity-blasting superpower to conquer any threat, and people would stop running for safer places to put their money. Crisis averted, there would be no need to actually use the ammunition.
Still, the huge dollar figure stoked hopes among lawmakers and would-be loan recipients — ones that have been disappointed.
The Fed has its limits.
Key markets began to mend themselves as soon as the Fed promised to step in as a backstop. Companies and local governments have been able to raise funds by selling debt to private investors at low rates.
Corporate bond issuance had ground to a standstill before the Fed stepped in, but companies have raised $1.5 trillion since it did, Daleep Singh, an official at the New York Fed, said on Tuesday. That is double the pace last year. The companies raising money are major employers and producers, and if they lacked access to credit it would spell trouble for the economy.
While self-induced obsolescence partly explains why the programs have not been used, it’s not the whole story. The Main Street program, the one meant to make loans to midsize businesses, is expected to see muted use even if conditions deteriorate again. In the program that buys state and local debt, rates are high and payback periods are shorter than many had hoped.
Continued lobbying suggests that if the programs were shaped differently, more companies and governments might use them.
The relatively conservative design owes to risk aversion on Mr. Mnuchin’s part: He was initially hesitant to take any losses and has remained cautious. They also trace to the Fed’s identity as a lender of last resort.
Penalty rates dissuaded use.
Walter Bagehot, a 19th-century British journalist who wrote the closest thing the Fed has to a Bible, said central banks should lend freely at a penalty rate and against good collateral during times of crisis.
In short: Step in when you must, but don’t replace the private sector or gamble on lost causes.
That dictum is baked into the Fed’s legal authority. The law that allows it to make emergency loans instructs officials to ensure that borrowers are “unable to secure adequate credit accommodations from other banking institutions.” The Fed specified in its own regulation that loan facilities should charge more than the market does in normal conditions — it wants to be a last-ditch option, not one borrowers would tap first.
The Fed has stretched its “last resort” boundaries. The Main Street program works through banks to make loans, so it is more of a credit-providing partnership than a pure market backstop, for instance.
Yet Bagehot’s dictum still informs the Fed’s efforts, which is especially easy to see in the municipal program. State finance groups and some politicians have been pushing the central bank to offer better conditions than are available in the market — which now has very low rates — to help governments borrow money for next to nothing in times of need.
The Fed and Treasury have resisted, arguing that the program has achieved its goal by helping the market to work.
The Fed has reasons to be wary.
Congress is not uniformly on board with wanting a more aggressive Fed that might become a first option for credit. Senator Patrick J. Toomey of Pennsylvania, a Republican on the committee that oversees the central bank, has repeatedly underlined that the Fed is a backstop.
And replacing private creditors during times of crisis would put central bankers — who are neither elected nor especially accountable — in the position of picking economic winners and losers, a role that worries the Fed.
Such choices are inherently political and polarizing. Already, many of the same people who criticize stringency in the state and local programs regularly argue that the programs intended to help companies should have come with more strings attached.
And it could become a slippery slope. If the Fed shoulders more responsibility for saving private and smaller public entities, Congress might punt problems toward the central bank before solving them democratically down the road.
“It’s opening Pandora’s box,” said David Beckworth, a senior research fellow at the Mercatus Center at George Mason University.
Being too careful could also carry an economic risk if it meant that the Fed failed to provide help where needed. The midsize business segment, which employs millions of people, has had few pandemic relief options. Struggling states and cities are also huge employers.
Yet those entities may be past the point of needing debt — all the Fed can offer — and require grants instead. And it is worth noting that just because the Fed and Treasury are not rewriting their programs to support broader use now does not mean the Fed would stand back if conditions were to worsen.
If that happens, “it’s going to stop pointing to the fact that it has a fire hose,” said Peter Conti-Brown, a Fed historian at the University of Pennsylvania. “It’s going to take it out and turn it on.”
Alan Rappeport contributed reporting.
When the federal government began the Paycheck Protection Program in April, one rule was clear to small-business owners bedeviled by its chaotic and messy start: If most of the loan money was used to pay employees, the debt would be forgiven.
But as the program enters its loan forgiveness phase, those owners — and their lenders — are finding out that although the principle may have been simple, its execution is anything but.
Many lenders have yet to start accepting applications from borrowers to have the loans forgiven. They are waiting to see whether Congress will pass a proposal to automatically forgive debt of less than $150,000, which make up the bulk of loans made under the program.
Square, the mobile payments company, lent Audrey Kramer $5,600 in May to pay the only employee of Sweet Treat Stop, her mobile food truck bakery. She has been ready since July to apply to have the debt wiped away, but Square hasn’t started taking applications. It sent her an email this month saying that it was “waiting to release our forgiveness application until we get more information from Congress.”
Ms. Kramer is grateful for her loan — it helped her keep paying her baker even as her sales plunged — but she’s also eager to be done with it. “We’ve been cautious and we’ve never carried any debt at all on the business,” she said.
On Thursday night, the Small Business Administration, which runs the program, released new forgiveness forms and rules for loans under $50,000. Such loans make up nearly 70 percent of the program. The new rules mean that some borrowers can still have their loans forgiven even if they cut head count or wages after taking the loan, but they will have to submit payroll documents and other records.
Lenders said the change was a start, but did not go far enough. The Consumer Bankers Association, an industry trade group, renewed its call for all loans under $150,000 to be automatically discharged.
“It’s almost a nightmare to go through the forgiveness process as it is now written,” Richard Hunt, the group’s chief executive, said. “You have millions of small businesses in crisis, some going under, and Congress is not there in their time of need.”
Lenders said they were also wary of processing applications without knowing how crucial aspects of loan forgiveness will work, like how carefully they are expected to vet borrower-provided documents like payroll records. They are waiting for details on the Trump administration’s stated plan to audit all loans over $2 million. And they are getting nervous about whether they will be paid back by the government for loans they made to businesses that have since closed or gone bankrupt.
More than 5.2 million business owners borrowed a total of $525 billion through the paycheck program, which used banks and other lenders as conduits to issue the loans. From April to August, small businesses were encouraged to borrow cash to cover eight weeks of payroll and a handful of other expenses. Once the money is spent, borrowers must apply through their bank to have their loan paid off by the government.
But business owners looking to start the loan forgiveness process have found lenders mostly unwilling to work on those applications until there is clarity from Congress, especially because of the cost and complexity of handling fairly small loans. Loan forgiveness proposals have been introduced in both the House and Senate with bipartisan backing — Treasury Secretary Steven Mnuchin said he was a supporter — and were likely to be included if Congress passed an economic relief bill, but the fate of such legislation is uncertain, with the presidential election just weeks away.
Ed Sterling, the president of Flagler Bank in West Palm Beach, Fla., said lenders had been “waiting on the edge of our seats” for legislative action. The process for reviewing a loan-forgiveness application will take his bank about three times as long as it took to actually originate the loan, he said.
The S.B.A. has been slow to act on loan forgiveness applications that lenders have sent in. The agency began accepting the forms on Aug. 10. By late September, it had received 96,000, but had not yet approved or denied a single application, William Manger, the agency’s chief of staff, said at a House subcommittee hearing. By law, the agency has 90 days to respond after it receives an application. An S.B.A. representative said the agency sent its first approvals and loan payments to banks on Oct 2.
Lynn Ozer, a banker at who specializes in small-business lending, said borrowers she worked with at Fulton Bank in Lancaster, Pa., were “panicked” at the prospect of their forgivable loans becoming debts if they made mistakes on their paperwork. “We can’t help our borrowers if we ourselves don’t understand the guidance,” Ms. Ozer said.
Trapped in the middle are business owners like Léa Kujala, a co-owner of Northwest Treatment, a counseling center near Portland, Ore. Ms. Kujala got a $34,000 loan in April, which helped her and her business partner retain their three employees when their revenue nose-dived.
Now, Ms. Kujala would like to get the loan paid off, but her lender, U.S. Bank, has not yet opened its forgiveness portal to her. Ms. Kujala — who estimates that she has already spent five hours gathering records and preparing her application — is so concerned about the loan’s many rules and potential tripwires that she is keeping all of the money she got in a reserve account, just in case her loan isn’t forgiven. (She drained her business’s savings to make payroll, and will pay that back if her loan is discharged.)
“We’re super nervous about the fact that we don’t know what’s going to happen,” she said. And the loan was only a temporary salve: With her revenue still down at least 30 percent, Ms. Kujala is preparing to lay off one of her employees.
A U.S. Bank spokesman said the bank was sending out invitations in stages to its forgiveness portal. After the bank was contacted for this article, a representative told Ms. Kujala that she would get an invitation soon.
Most borrowers — and their lenders — can afford to wait before seeking loan forgiveness. The CARES Act, which created the P.P.P., initially set repayments on any remaining debt to begin six months after a loan was disbursed, but Congress later revised the law to give borrowers as long as 16 months to apply for forgiveness. For most borrowers, that means the issue won’t become urgent until mid-2021.
But there, too, the law has a gray area. More than four million borrowers — a majority — have loans that were made before the rules changed. To scrupulously follow the law, lenders would need to formally modify those loans and get each borrower’s signature on the changes. That’s a “momentous task,” said Brad Bolton, the chief executive of Community Spirit Bank in Red Bay, Ala. The S.B.A. has not yet responded to banks’ requests for clarification on the matter — and payments for the program’s earliest borrowers are scheduled to come due this month.
Most lenders, especially the biggest ones, have decided to take the risk and simply postpone all payments, said Tony Wilkinson, the chief executive of the National Association of Government Guaranteed Lenders, a trade group. “Because it’s a benefit to the borrower, they’re doing it unilaterally, because who is going to object?” he said.
Glenn Sandler, an accountant in Melbourne, Fla., has around 200 clients with P.P.P. loans, averaging around $40,000 each. He’s advising all of them to sit tight and wait for what he believes will be legislative fixes to the forgiveness process. “Hopefully, Congress will get off their butts,” he said.
Mr. Sandler thinks automatic forgiveness for small loans is likely, in part because the alternative — trying to collect payments from small businesses struggling to stay afloat — is untenable.
“They’re broke,” he said of the mom-and-pop ventures that he works with. “There’s a lot of people who won’t be able to pay it back. So, what, they’re going to go into collections with them? There’s no sense in that.”