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      Federal Reserve announces biggest interest rate hike since 1994

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      Federal Reserve announces biggest interest rate hike since 1994Fed confirms 0.75 percentage-point increase as Americans across country hit hard by rising prices and shortages of key items With soaring inflation and the shadow of recession hanging over the United States, the Federal Reserve announced a 0.75 percentage-point increase in interest rates on Wednesday – the largest hike since 1994.Until this week the Fed had been expected to announce a smaller increase. At a press conference, the Fed chair, Jerome Powell, said the central bank decided that a larger hike was needed after recent economic news, including last week’s announcement that inflation had risen to a 40-year high.He made clear that a similarly outsized rate rise should be expected at its next meeting in July unless price rises softened. “We at the Fed understand the hardship inflation is causing,” he said. “Inflation can’t go down until it flattens out. That’s what we’re looking to see.”The hike will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75% and officials said they expected rates to rise to at least 3% this year.Powell acknowledged that the Fed’s attempt to cool spending is likely to lead to job losses. The Fed expects unemployment to rise to 4.1% from the current rate of 3.6% as it attempts to bring inflation back down to its target rate of 2%.“We never seek to put people out of work,” Powell said. But, he added: “You really cannot have the kind of labor market we want without price stability.”The rate rise came after more bad news on inflation late last week sent US stock markets into a tailspin, presenting the Fed and the Biden administration with an escalating crisis amid fears that runaway inflation has now spread through the economy.Over a third of US population urged to stay indoors amid record-breaking heatRead moreThe Fed cut rates to near zero at the start of the coronavirus pandemic, as the US and global economies effectively shut down. It increased rates for the first time since 2018 in March this year, but the increase did nothing to tamp down rising prices.Powell initially described rising prices as “transitory”, but has changed his view and says the Fed intends to aggressively increase rates in order to bring prices back under control. There are already signs that consumers are cutting back in the face of rising inflation. Retail spending fell for the first time this year in May, the commerce department said on Wednesday. Home sales have fallen for three consecutive months and consumer confidence hit a record low between May and June.Last week the labor department announced consumer prices were 8.6% higher in May than they were a year ago. The increase was broad-based, with food and fuel prices rising alongside rent, airfares and car prices.Across the country, consumers are being confronted by rising prices and shortages. Nationally, gas now costs an average of $5 per gallon, close to $2 higher than a year ago. In California, a gallon of gas now costs more than $6, up from just over $4 a year ago.Supply chain disruptions and other issues have led to shortages of basic necessities including tampons and baby formula.On Wednesday, Joe Biden summoned top oil executives to the White House to discuss ways they can “work with my administration to bring forward concrete, near-term solutions that address the crisis”.Biden’s handling of the inflation issue has battered his poll numbers. With crucial midterm elections, and control of Congress, coming up in November, Biden’s approval rating is 33%, according to Quinnipiac University’s national poll, equal to the lowest rating for his administration.Many parts of the economy remain strong and the Fed is aiming for a “soft landing” – hoping it can tame inflation by raising rates without sharply increasing the unemployment rate – but Powell acknowledged some risks, including the war in Ukraine, were beyond the influence of the Fed.Nearly 70% of the academic economists polled by the Financial Times and the University of Chicago’s Booth School of Business now believe the US economy will tip into a recession next year.TopicsFederal ReserveUS interest ratesUS economyInflationUS politicsBiden administrationEconomicsnewsReuse this content More

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      Biden releases $7bn in frozen Afghan funds to split between 9/11 families and aid

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      Biden releases $7bn in frozen Afghan funds to split between 9/11 families and aidMoney would go toward humanitarian efforts for Afghan people and to US victims of terrorism, keeping it out of hands of Taliban Joe Biden signed an executive order on Friday releasing $7bn in frozen Afghan reserves to be split between humanitarian efforts for the Afghan people and American victims of terrorism, including relatives of 9/11.In a highly unusual move, the convoluted plan is designed to tackle a myriad of legal bottlenecks stemming from the 2001 terrorist attacks and the chaotic end of the 20-year war in Afghanistan, which ignited a humanitarian and political crisis, the New York times reports.But critics warned that it could tip Afghanistan’s already-strained banking system over the edge into systemic failure and deepen a humanitarian crisis that has left millions facing starvation and almost the entire country – 98% – short of food.“You’re talking about moving toward a total collapse of the banking system,” Dr Shah Mohammad Mehrabi, a longtime member of the bank’s board and economics professor at Montgomery College in Maryland, told the New York Times. “I think it’s a shortsighted view.”Cash shortages have already led to strict weekly limits on how much of their savings people can withdraw, deepening the economic crisis as inflation soars.In August the Taliban seized control and the former government collapsed, leaving behind just over $7bn in central bank assets deposited in the US Federal Reserve bank in New York. As Afghanistan’s top officials, including the president and central bank governor, fled the country, the Fed froze the account as it was unclear who was legally authorised to access the funds.The Taliban took over the central bank – known as Da Afghanistan Bank – and immediately claimed a right to the money, but under longstanding counter-terrorism sanctions it is illegal to engage in financial transactions with the organisation. Furthermore, the US does not recognize the Taliban as the legitimate government of Afghanistan.As the Biden administration mulled over what to do with the funds, a group of relatives of victims of the September 11 attacks, who years ago won a default judgment against the Taliban and al-Qaida, sought to seize the Afghan bank assets. In a case known as Havlish, the plaintiffs persuaded a judge to dispatch a US marshal to serve the Federal Reserve with a “writ of execution” to seize the Afghan money.The Biden government has intervened in the lawsuit, and is expected to tell the court that the victims’ claims for half the money should be heard (several other victims’ groups have also asked for a share). If the judge agrees, Biden will seek to direct the remainder toward some sort of trust fund to be spent on food and other humanitarian aid in Afghanistan – while keeping it out of the hands of the Taliban.The process is likely to be long and messy, with advocates and some 9/11 victims arguing that the Afghan assets should all go to help the Afghan people who are facing mounting hardship.The money – which includes currency, bonds and gold – mostly comes from foreign exchange funds that accumulated over the past two decades when western aid flowed into Afghanistan. But it also includes the savings of ordinary Afghans, who are now facing growing violence and hunger with the economy and rule of law in freefall.“The 9/11 victims deserve justice but not from the Afghan people who themselves became pawns caught in the middle of the US-led ‘war on terror’ and an oppressive Taliban regime,” said Adam Weinstein, research fellow at the Quincy Institute, who also served as a US marine in Afghanistan.“The idea that overnight, the central bank reserves went from belonging to the Afghan people to being the transferable property of the United States is nothing short of colonial.”In another sign of the desperate humanitarian situation in Afghanistan, the World Health Organization said on Friday that a raging measles outbreak had infected tens of thousands and killed more than 150 people last month alone.The UN health agency said the outbreak was particularly concerning since Afghanistan is facing massive food insecurity and malnutrition, leaving children far more vulnerable to the highly contagious disease.“Measles cases have been increasing in all provinces since the end of July 2021,” a WHO spokesman, Christian Lindmeier, told reporters in Geneva.He said cases had surged recently, ballooning by 18% in the week of 24 January and by 40% in the last week of the month.In all, 35,319 suspected measles cases were reported in January, including 3,000 that were laboratory confirmed, and 156 deaths. Ninety-one per cent of the cases and 97% of the deaths were children under the age of five.Lindmeier stressed that the measles-related deaths were probably underreported and the numbers were expected to swell. “The rapid rise in cases in January suggests that the number of deaths due to measles is likely to increase sharply in the coming weeks,” Lindmeier said.TopicsAfghanistanJoe BidenSeptember 11 2001US foreign policyUS politicsFederal ReserveTalibannewsReuse this content More

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      The Fed is about to raise interest rates and shaft American workers – again | Robert Reich

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      The Fed is about to raise interest rates and shaft American workers – againRobert ReichPolicymakers fear a labor shortage is pushing up wages and prices. Wrong. Real wages are down and workers are struggling The January jobs report from the US labor department is heightening fears that a so-called “tight” labor market is fueling inflation, and therefore the Fed must put on the brakes by raising interest rates.This line of reasoning is totally wrong.Trump and his enablers unwittingly offer Democrats the best hope in the midterms | Robert ReichRead moreAmong the biggest job gains in January were workers who are normally temporary and paid low wages: leisure and hospitality, retail, transport and warehousing. In January, employers cut fewer of these workers than in most years because of rising customer demand combined with Omicron’s negative effect on the supply of workers. Due to the Bureau of Labor Statistics’ “seasonal adjustment”, cutting fewer workers than usual for this time of year appears as “adding lots of jobs”.Fed policymakers are poised to raise interest rates at their March meeting and then continue raising them, in order to slow the economy. They fear that a labor shortage is pushing up wages, which in turn are pushing up prices – and that this wage-price spiral could get out of control.It’s a huge mistake. Higher interest rates will harm millions of workers who will be involuntarily drafted into the inflation fight by losing jobs or long-overdue pay raises. There’s no “labor shortage” pushing up wages. There’s a shortage of good jobs paying adequate wages to support working families. Raising interest rates will worsen this shortage.There’s no “wage-price spiral” either, even though Fed chief Jerome Powell has expressed concern about wage hikes pushing up prices. To the contrary, workers’ real wages have dropped because of inflation. Even though overall wages have climbed, they’ve failed to keep up with price increases – making most workers worse off in terms of the purchasing power of their dollars.Wage-price spirals used to be a problem. Remember when John F Kennedy “jawboned” steel executives and the United Steel Workers to keep a lid on wages and prices? But such spirals are no longer a problem. That’s because the typical worker today has little or no bargaining power.Only 6% of private-sector workers are unionized. A half-century ago, more than a third were. Today, corporations can increase output by outsourcing just about anything anywhere because capital is global. A half-century ago, corporations needing more output had to bargain with their own workers to get it.These changes have shifted power from labor to capital – increasing the share of the economic pie going to profits and shrinking the share going to wages. This power shift ended wage-price spirals.Slowing the economy won’t remedy either of the two real causes of today’s inflation – continuing worldwide bottlenecks in the supply of goods and the ease with which big corporations (with record profits) pass these costs to customers in higher prices.Supply bottlenecks are all around us. Just take a look at all the ships with billions of dollars of cargo idling outside the Ports of Los Angeles and Long Beach, through which 40% of all US seaborne imports flow.Big corporations have no incentive to absorb the rising costs of such supplies – even with profit margins at their highest level in 70 years. They have enough market power to pass these costs on to consumers, sometimes using inflation to justify even bigger price hikes.“A little bit of inflation is always good in our business,” the chief executive of Kroger said last June.“What we are very good at is pricing,” the chief executive of Colgate-Palmolive said in October.In fact, the Fed’s plan to slow the economy is the opposite of what’s needed now or in the foreseeable future. Covid is still with us. Even in its wake, we’ll be dealing with its damaging consequences for years: everything from long-term Covid to school children months or years behind.Friday’s jobs report shows that the economy is still 2.9m jobs below what it had in February 2020. Given the growth of the US population, it’s 4.5m short of what it would have by now had there been no pandemic.Consumers are almost tapped out. Not only are real (inflation-adjusted) incomes down but pandemic assistance has ended. Extra jobless benefits are gone. Child tax credits have expired. Rent moratoriums are over. Small wonder consumer spending fell 0.6% in December, the first decrease since last February.Many people are understandably gloomy about the future. The University of Michigan consumer sentiment survey plummeted in January to its lowest level since late 2011, back when the economy was trying to recover from the global financial crisis. The Conference Board’s index of confidence also dropped in January.Given all this, the last thing average working people need is for the Fed to raise interest rates and slow the economy further. The problem most people face isn’t inflation. It’s a lack of good jobs.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
      TopicsFederal ReserveOpinionUS economyEconomicsUS unemployment and employment dataUS unionsUS domestic policyUS politicscommentReuse this content More

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      The US jobs report was a warning sign – even before the Omicron surge | Robert Reich

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      The US jobs report was a warning sign – even before the Omicron surgeRobert ReichThe Fed wants to raise interest rates and coronavirus support programs are ending. Millions of families stand to suffer Friday’s jobs report from the Department of Labor was a warning sign about the US economy. It should cause widespread concern about the Fed’s plans to raise interest rates to control inflation. And it should cause policymakers to rethink ending government supports such as extended unemployment insurance and the child tax credit. These will soon be needed to keep millions of families afloat.US workforce grows by just 199,000 in disappointing DecemberRead moreEmployers added only 199,000 jobs in December. That’s the fewest new jobs added in any month last year. In November, employers added 249,000. The average for 2021 was 537,000 jobs per month. Note also that the December survey was done in mid-December, before the latest surge in the Omicron variant of Covid caused millions of people to stay home.But the Fed is focused on the fact that average hourly wages climbed 4.7% over the year. Central bankers believe those wage increases have been pushing up prices. They also believe the US is nearing “full employment” – the maximum rate of employment possible without igniting even more inflation.As a result, the Fed is about to prescribe the wrong medicine. It’s going to raise interest rates to slow the economy – even though millions of former workers have yet to return to the job market and even though job growth is slowing sharply. Higher interest rates will cause more job losses. Slowing the economy will make it harder for workers to get real wage increases. And it will put millions of Americans at risk.The Fed has it backwards. Wage increases have not caused prices to rise. Price increases have caused real wages (what wages can actually purchase) to fall. Prices are increasing at the rate of 6.8% annually but wages are growing only between 3-4%.The most important cause of inflation is corporate power to raise prices.Yes, supply bottlenecks have caused the costs of some components and materials to rise. But large corporations have been using these rising costs to justify increasing their own prices when there’s no reason for them to do so.Corporate profits are at a record high. If corporations faced tough competition, they would not pass those wage increases on to customers in the form of higher prices. They’d absorb them and cut their profits.But they don’t have to do this because most industries are now oligopolies composed of a handful of major producers that coordinate price increases.Yes, employers have felt compelled to raise nominal wages to keep and attract workers. But that’s only because employers cannot find and keep workers at the lower nominal wages they’d been offering. They would have no problem finding and retaining workers if they raised wages in real terms – that is, over the rate of inflation they themselves are creating.Astonishingly, some lawmakers and economists continue to worry that the government is contributing to inflation by providing too much help to working people. A few, including some Democrats like Joe Manchin and Kyrsten Sinema, are unwilling to support Biden’s Build Back Better package because they fear additional government spending will fuel inflation.Joe Biden needs to stand up and fight Manchin like our lives depend on it | Daniel SherrellRead moreHere again, the reality is exactly the opposite. The economy is in imminent danger of slowing, as the December job numbers (collected before the Omicron surge) reveal.Many Americans will soon need additional help since they can no longer count on extra unemployment benefits, stimulus payments or additional child tax credits. This is hardly the time to put on the fiscal brakes.Policymakers at the Fed and in Congress continue to disregard the elephant in the room: the power of large corporations to raise prices. As a result, they’re on the way to hurting the people who have been taking it on the chin for decades – average working people.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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      Supreme court, Facebook, Fed: three horsemen of democracy’s apocalypse | Robert Reich

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      OpinionUS supreme courtSupreme court, Facebook, Fed: three horsemen of democracy’s apocalypseRobert ReichThese unaccountable bodies hold increasing sway over US government. Their abuses of power affect us all Sun 10 Oct 2021 01.00 EDTLast modified on Sun 10 Oct 2021 05.22 EDTThe week’s news has been dominated by the supreme court, whose term began on Monday; the Federal Reserve, and whether it will start responding to inflation by raising interest rates; and Facebook, which a whistleblower claimed intentionally seeks to enrage and divide Americans in order to generate engagement and ad revenue.‘Facebook can’t keep its head in the sand’: five experts debate the company’s futureRead moreThe common thread is the growing influence of these three power centers over our lives, even as they become less accountable to us. As such, they present a fundamental challenge to democracy.Start with the supreme court. What’s the underlying issue?Don’t for a moment believe the supreme court bases its decisions on neutral, objective criteria. I’ve argued before it and seen up close that justices have particular and differing ideas about what’s good for the country. So it matters who they are and how they got there.A majority of the nine justices – all appointed for life – were put there by George W Bush and Donald Trump, presidents who lost the popular vote. Three were installed by Trump, a president who instigated a coup. Yet they are about to revolutionize American life in ways most Americans don’t want.This new court seems ready to overrule Roe v Wade, the 1973 ruling that anchored reproductive rights in the 14th amendment; declare a 108-year-old New York law against carrying firearms unconstitutional; and strip federal bodies such as the Environmental Protection Agency of the power to regulate private business. And much more.Only 40% of the public approves of the court’s performance, a new low. If the justices rule in ways anticipated, that number will drop further. If so, expect renewed efforts to expand the court and limit the terms of its members.What about the Fed?Behind the recent stories about whether the Fed should act to tame inflation is the reality that its power to set short-term interest rates and regulate the financial sector is virtually unchecked. And here too there are no neutral, objective criteria. Some believe the Fed’s priority should be fighting inflation. Others believe it should be full employment. So like the supreme court, it matters who runs it.Elizabeth Warren tells Fed chair he is ‘dangerous’ and opposes renominationRead morePresidents appoint Fed chairs for four-year terms but tend to stick with them longer for fear of rattling Wall Street, which wants stability and fat profits. (Alan Greenspan, a Reagan appointee, lasted almost 20 years, surviving two Bushes and Bill Clinton, who didn’t dare remove him).The term of Jerome Powell, the current Fed chair, who was appointed by Trump, is up in February. Biden will probably renominate him to appease the Street, although it’s not a sure thing. Powell has kept interest rates near zero, which is appropriate for an economy still suffering the ravages of the pandemic.But Powell has also allowed the Street to resume several old risky practices, prompting the Massachusetts Democratic senator Elizabeth Warren to tell him at a recent hearing that “renominating you means gambling that, for the next five years, a Republican majority at the Federal Reserve, with a Republican chair who has regularly voted to deregulate Wall Street, won’t drive this economy over a financial cliff again.”Finally, what’s behind the controversy over Facebook?Facebook and three other hi-tech behemoths (Amazon, Google and Apple) are taking on roles that once belonged to governments, from cybersecurity to exploring outer space, yet they too are unaccountable.Their decisions about which demagogues are allowed to communicate with the public and what lies they are allowed to spew have profound consequences for whether democracy or authoritarianism prevails. In January, Mark Zuckerberg apparently deferred to Nick Clegg, former British deputy prime minister, now vice-president of Facebook, on whether to allow Trump back on the platform.Worst of all, they’re sowing hate. As Frances Haugen, a former data scientist at Facebook, revealed this week, Facebook’s algorithm is designed to choose content that will make users angry, because anger generates the most engagement – and user engagement turns into ad dollars. The same is likely true of the algorithms used by Google, Amazon and Apple. Such anger has been ricocheting through our society, generating resentment and division.US supreme court convenes for pivotal term – with its credibility on the lineRead moreYet these firms have so much power that the government has no idea how to control them. How many times do you think Facebook executives testified before Congress in the last four years? Answer: 30. How many laws has Congress enacted to constrain Facebook during that time? Answer: zero.Nor are they accountable to the market. They now make the market. They’re not even accountable to themselves. Facebook’s oversight board has become a bad joke.These three power centers – the supreme court, the Fed and the biggest tech firms – have huge and increasing effects on our lives, yet they are less and less answerable to us.Beware. Democracy depends on accountability. Accountability provides checks on power. If abuses of power go unchallenged, those who wield it will only consolidate their power further. It’s a vicious cycle that erodes faith in democracy itself.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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      The $2,000 stimulus cheques alone won't work – the US needs better infrastructure

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      With the Democrats’ stunning sweep of Georgia’s two Senate run-off elections giving them control of both houses of Congress as of 20 January, the idea of $2,000 stimulus cheques for every household is sure to be back on the agenda in the US. But although targeted relief for the unemployed should unquestionably be a priority, it is not clear that $2,000 cheques for all would in fact help to sustain the US economic recovery.One post-pandemic scenario is a vigorous demand-driven recovery as people gorge on restaurant meals and other pleasures they’ve missed for the past year. Many Americans have ample funds to finance a splurge. Personal savings rates soared following the disbursement of $1,200 cheques last spring. Many recipients now expect to save their recent $600 relief payments, either because they have been spared the worst of the recession or because spending opportunities remain locked down.So, when it’s safe to go out again, the spending floodgates will open, supercharging the recovery. The Fed has already promised to “look through” – that is, to disregard – any temporary inflation resulting from this euphoria.But we shouldn’t dismiss the possibility of an alternative scenario in which consumers instead display continued restraint, causing last year’s high savings rates to persist. Prior to the Covid-19 crisis, some two-thirds of US households lacked the savings to replace six weeks of take-home pay. Having reminded Americans of the precariousness of their world, the pandemic is precisely the type of searing experience that induces fundamental changes in behaviour.We know that living through a large economic shock, especially in young adulthood, can have an enduring impact on people’s beliefs, including those about the prevalence of future shocks. Such changes in outlook are consistent with psychological research showing that people rely on “availability heuristics” – intellectual shortcuts based on recalled experience – when assessing the likelihood of an event. For those parents unable to put food on the table during the pandemic, the experience will establish a heuristic that will be hard to forget.Moreover, neurological research shows that economic stress, including from large shocks, increases anabolic steroid hormone levels in the blood, which renders individuals more risk-averse. Neuroscientists have also documented that traumatic stress can cause permanent synaptic changes in the brain that further shape attitudes and behaviour, in this case plausibly in the direction of greater risk aversion.Though the pandemic is in some ways more akin to a natural disaster than an economic shock, natural disasters also can affect saving patterns: savings rates tend to be higher in countries with a greater incidence of earthquakes and hurricanes.This behavioural response is largest in developing countries, where weak construction standards amplify the impact of such disasters. One study of Indonesia, for example, found large increases in both the perceived risk of a future disaster and risk-averse behaviour among people who had recently experienced an earthquake or flood. While the response to natural disasters may be more moderate in advanced economies – where individuals expect that their government will compensate them – some lasting impact will almost certainly remain.The upshot is that we can’t count on a burst of US consumer spending to fuel the recovery once the rollout of Covid-19 vaccines is complete. And if private spending remains subdued, continued support from public spending will be necessary to sustain the recovery.But putting $2,000 cheques in people’s bank accounts won’t solve this problem because unspent money doesn’t stimulate demand. With interest rates already near zero, the availability of additional funding won’t even encourage investment. Sending out $2,000 cheques to everyone thus would be the fiscal equivalent of pushing on a string.Fortunately, there is an alternative: the president-elect Joe Biden’s $2tn infrastructure plan would mean additional jobs and spending, which is what the post-pandemic economy really needs. Better still, under the prevailing low interest rates, this option would stimulate job creation without crowding out private investment.Guardian business email sign-upAlthough Biden’s plan will require more government borrowing, infrastructure spending that has a rate of return of 2% will more than pay for itself when the yield on 10-year US treasury bonds is 1.15%. By raising output, such expenditure reduces rather than increases the burden on future generations. The International Monetary Fund estimates that, under current circumstances, well-targeted infrastructure investment pays for itself in just two years.Obviously, the “well targeted” part is important. President Donald Trump was right that the Coronavirus Aid, Relief, and Economic Security Act was loaded with pork, not least his own “three-martini lunch” tax deduction for businesses. There’s every reason to question whether Congress can do better when crafting an infrastructure bill.In response to this problem, countries such as New Zealand have established independent commissions to design and monitor infrastructure spending initiatives. If Covid-19 changes everything, then maybe it can change the way the US government organises infrastructure spending. Creating an independent infrastructure commission with real powers would go a long way toward reassuring the sceptics and insuring the recovery against the risks posed by the pandemic’s lingering behavioural effects. More

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      Jobs slump and Covid lead litany of post-Trump crises facing Janet Yellen

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      Of all the 78 US Treasury secretaries since Alexander Hamilton first took up the office in 1789, few have faced an in-tray piled quite so high as the one that will greet the first woman in the job: Janet Yellen.The choice of the Brooklyn-born doctor’s daughter to succeed Steve Mnuchin was a statement of intent by president-elect Joe Biden. Where many of her predecessors have been scions of Wall Street, Yellen’s background is in economics and public policy, and she has made it clear that her priorities are with Americans struggling to get by rather than with investment bankers. “There is a huge amount of suffering out there,” she said in September as she urged Congress to agree a new stimulus package.Yellen’s expressed desire for tighter financial regulation did not, however, stop Wall Street from joining the applause for her nomination. In part, that was due to the fact that, having been the first woman to be in charge of America’s central bank, she is seen as a seasoned pro. Donald Trump declined to give her a second term as chair of the Federal Reserve in 2018 not because she was doing a bad job, but because she was a Democrat appointed by Barack Obama.More importantly, though, Wall Street sees Yellen as a Treasury secretary who will push hard for expansionary policies aimed at boosting growth, profits and share prices. Nothing in her record suggests that the financiers are wrong.American economists are often divided into two camps: “freshwater” economists who believe in the primacy of market forces and whose spiritual home is the University of Chicago in landlocked Illinois; and “saltwater” economists, who emanate from the universities on the Atlantic and Pacific seaboards and admire the teachings of John Maynard Keynes.Yellen is a Keynesian to her fingertips: she warned against an over-hasty removal of stimulus during the financial crisis of a decade ago; she insisted that the Fed pay as much attention to unemployment as to inflation when she was its chair; and she believes the state has a duty to tackle poverty and inequality.Mohamed El-Erian, once chief executive of the investment management firm Pimco but now president of Queens’ College, Cambridge, said: “The appointment was probably one of the most well-received in the history of the US Treasury, and for good reason. Economists, lawmakers and market participants rightly see her as highly qualified, having lots of relevant experience and coming to the job with a deep understanding of both domestic and international issues. The policy portfolio she inherits will require an agile mix of traditional and out-of-the-box thinking.”Top of the to-do list will be a new package of support for a US economy struggling with three interlinked problems: a pandemic, high levels of unemployment, and the imminent expiry of financial support for laid-off workers.The jobless total has come down since surging to levels not seen since the Great Depression in the first wave of infections in the spring, but remains troublingly high for a country with, by western standards, a limited welfare safety net. What’s more, the latest data on Friday showed the rate of job creation slowing.Biden wants Congress to pass a “robust” stimulus package, and the chances of that happening will be greatly improved if the Democrats seize control of the Senate by winning the two vacant seats in Georgia next month. If not, as Mark Sobel of the Omfif thinktank says, Biden will be dealing with a “stingy” Republican Senate leader, Mitch McConnell.The appointment was probably one of the most well received in the history of the US Treasury“Yellen will help negotiate and provide intellectual backing, making the case that now is the time to spend and that with low debt service costs, America should not fret in the near-term about rising debt,” Sobel says.Getting an emergency package of stimulus through Congress will only be the start of the legislative battle, because Biden also wants to spend more on upgrading America’s crumbling infrastructure and on tackling global heating.Yellen’s scope for fiscal action (tax and spending measures) may be limited by gridlock in Congress, in which case the White House will require the Fed to provide more stimulus and a good working relationship between Yellen and the man who succeeded her as head of the central bank, Jerome Powell.While sorting out the labour market and boosting living standards will be the biggest challenge, Yellen will also devote time to other policy issues. She has the executive power to toughen up what she sees as too-weak financial regulation without Congress’s say so; she will adopt a less hostile – if still robust – approach towards China; and she will seek to reassert US leadership on the global stage, pursuing a multilateralist rather than a go-it-alone approach.In all, Yellen can be expected to act as if Trump’s four years in office never happened. The message will be that the grownups are back in charge.Six central bankers who shaped the future of their economiesBen Bernanke Chair of the US Federal Reserve between 2006 and 2014, Bernanke was credited with preventing a deep recession following the 2008 financial crisis. A student of the 1930s Great Depression, he vowed to rescue the banking system and maintain the flow of funds to prevent a wave of foreclosures and mass unemployment.His determination contrasted with the Bank of England, which hesitated before rescuing Northern Rock. However, Bernanke, a former Princeton professor, played down the threat from the US sub-prime mortgage scandal during the first two years of his tenure, which he has admitted made the crisis, when it came, much worse.Karl Otto Pöhl Often dubbed a father of the euro, Pöhl was appointed president of the German Bundesbank from 1980 to 1991 by his friend and mentor, chancellor Helmut Schmidt. A colourful, English-speaking former economics journalist, he came to prominence after the conservative Helmut Kohl surprised many and reappointed him. He famously warned Kohl against rushing ahead with German unification based on a one-to-one valuation of the east German mark with its West German equivalent, fearing the collapse of the east’s uncompetitive export industries. He said the same about the implementation of the euro. Kohl ignored him. East Germany’s industrial base collapsed. After the 2008 financial crisis, southern Europe erupted in riots, with protesters blaming the euro for their ills.Mario Draghi If Pöhl laid the foundation stones for the euro, Draghi prevented the currency from toppling over. In 2012, after campaigns in several member states to quit the euro – notably in Greece and Italy – triggered panic in financial markets, he said the single currency was “irreversible” and famously pledged to do “whatever it takes” to save it.As president of the European Central Bank from 2011 to 2019, which absorbed most of the powers from 19 member states’ central banks on its creation in 1999, he drew a line under the destabilising debate about the currency’s future. After he stepped down, the Nobel prize-winning economist Paul Krugman described him as “[arguably] the greatest central banker of modern times”.Mark Carney Carney was governor of the Bank of England from 2013 to March this year. He was appointed by the chancellor at the time, George Osborne, who courted him for a year and called the former Goldman Sachs banker and head of Canada’s central bank “the outstanding central banker of his generation”. Yet within a year, he was likened to an “unreliable boyfriend” who failed to match his promises with action. This followed a series of overly optimistic forecasts that led many to prepare for an increase in interest rates that never came. Carney, more polished and dapper than his contemporaries, recovered much of his reputation in 2016 when he was dubbed “the only adult in the room” following the Brexit referendum. While parliament went into shock and No 10 was consumed by the resignation of David Cameron, Carney toured the TV and radio stations, calming fraying nerves.Raghuram Rajan The Chicago Booth economics professor is often described as one of the few economists to predict the financial crisis. In a speech in 2005 to the world’s top central bankers he explained that an explosion of borrowing made financial markets more dangerous. At the time he was chief economist at the International Monetary Fund, so he might have expected his warning that “it’s possible these developments are creating a greater (albeit still small) probability of a catastrophic meltdown” would be taken seriously. It wasn’t.He took over as governor of India’s central bank in 2013 after warning that the country was suffering from hubris, adding that “growth can never be taken for granted” and that “self-delusion is the first step towards disaster”. The rupee, which tumbled 12% against the dollar in the three months before his arrival, stabilised. By the time he left in 2016, price inflation had fallen from almost 10% to below 4% and a series of banking reforms were in place.Christine Lagarde As president of the European Central Bank since last year, Lagarde has shown she is a would-be central bank hero. Shifting the dial at an institution covering 19 countries is never easy, but the former boss of the IMF has embarked on a campaign for greater transparency in a break from the traditionally closeted bank’s decision-making, and for unemployment and inequality to be as much of a yardstick for the ECB as inflation. She has also matched Carney in the drive to make central bank lending more climate-friendly, with green bonds that only allow loans to businesses that are environmentally friendly. PI More