Yellen seizes the moment to boost Biden's agenda

Janet Yellen may be one of the stars of the Biden administration, but she has kept a low profile when it comes to selling the White House’s economic record. With the midterm election two months away, that’s about to change.

Starting this week, the Treasury chief will begin a month-long tour talking up President Joe Biden’s accomplishments and highlighting her agency’s role. She traveled to Michigan on Thursday and will go to North Carolina later this month, among other destinations, to press the message that Biden’s agenda will restore fairness to the tax code, bolster the economy’s resilience to global shocks and expand productivity through historic infrastructure investments.

"I am more optimistic about the course of our economy than I have been for quite a while," Yellen said in a speech in Dearborn, Mich. "We are headed in the right direction."

That kind of victory lap would have been unthinkable just three months ago — especially for Yellen, a former Federal Reserve chair who has sometimes been overshadowed by other administration officials on the public stage.

In late May, White House aides were scrambling to contain the fallout from her admission in a CNN interview that she was wrong when she had predicted raging inflation would be temporary — a comment that Republicans used to hammer the White House over the worst price spikes in four decades.

Gasoline prices were surging, consumer sentiment was sinking and the president’s legislative agenda had stalled. Talk of an economic downturn hit a fever pitch.

“They were in a really, really tough place,” said Tony Fratto, a Treasury official under President George W. Bush and now a partner at Hamilton Place Strategies. “This summer has been very good for the administration, and it’s been good for Secretary Yellen.”

In addition to twin legislative wins for the White House — enactment of the Inflation Reduction Act and the CHIPS Act, which contains billions in funding for semiconductor production — gasoline prices have slid nearly 25 percent since their June peak, inflation has shown signs of stabilizing and employers continue to add jobs.

Yellen also scored an important diplomatic win last week when the Group of Seven economies endorsed Treasury’s untested proposal to cap the price of Russian oil, which the secretary says will help contain inflation and crimp the energy revenue that’s fueling the Kremlin’s war machine.

“If she’s going to get out and talk more, she has more things to talk about now than in the spring,” Fratto said. “They’ve got a fighting chance to reclaim more positive opinion from people in the coming months.”

Still, Yellen must contend with a murky outlook, including slowing economic growth and rising recession risks, as the Fed continues ratcheting up interest rates in a bid to tamp down inflation. And though Biden’s overall approval rating rose in August to 44 percent, voters still give him low marks on his handling of the economy.

"The most immediate challenge is to return to an environment of stable prices without sacrificing the economic gains of the past two years," Yellen said in Dearborn, where she kicked off her tour at Ford Motor Co.’s Rouge Electric Vehicle Center. She highlighted provisions in the Biden plan such as electric-vehicle incentives and funding for research and development, which the White House says will boost manufacturing and strengthen supply chains.

She also called for further changes to the corporate tax code and global tax system, including closing loopholes and returning tax rates for high earners and corporations to historical norms.

The administration’s economic agenda — what Yellen has dubbed “modern supply-side economics” — is not just pro-growth, but also pro-fairness, she said in prepared remarks.

“In layman’s terms, this approach embraces the notion that some of the best opportunities for growth occur when we invest in people and places that have been forgotten and overlooked,” Yellen said.

The recent legislation will ensure that investments are dispersed across the country, in underrepresented and underserved communities, rather than in the major coastal cities where economic opportunity has been concentrated, according to Yellen.

She also plans to highlight how the American Rescue Plan, the law enacted in March 2021 that critics have blamed for fueling inflation, helped spur a dramatic rebound in economic activity last year, avoiding the kind of long-term scarring for many Americans that pervaded previous recoveries.

The swing through Michigan will be followed next week by remarks from Yellen in Washington on the administration’s corporate tax increases and plans to shore up the IRS, and the week after that with a focus on how the president’s economic agenda makes the U.S. more resilient in the face of international shocks, such as the war in Ukraine. She’ll finish the month with a trip to North Carolina to talk up investments in clean energy technology.

For Yellen, a career technocrat and academic, being an administration salesperson is not the part of the job that has always come easiest. But for a White House that wants to capitalize on its improving political fortunes, she is one of the most important public messengers.

The challenge will be cheering the president’s successes while at the same time acknowledging the struggles American households and businesses are facing, said Stephen Myrow, a managing partner at Beacon Policy Advisors who served as a top aide in the George W. Bush Treasury Department.

Inflation decelerated in July but still remained exceptionally high, rising 8.5 percent from a year earlier, according to the Labor Department’s Consumer Price Index. Rising interest rates are also starting to feed through the economy, particularly in the housing sector, which has cooled dramatically since the spring. Measures of consumer sentiment have edged up in recent months, but are still well below where they were a year ago.

Now is also a good time for Yellen to be out in public as speculation swirls about her post-midterm plans, Myrow said.

Yellen, the first woman to lead the Treasury Department, said in July that she would stay in the job "as long as President Biden finds my contributions to be useful," and people close to her say she has not given any indication that she intends to leave anytime soon. Treasury will play a major role in implementing parts of the Inflation Reduction Act next year, including major investments in IRS technology and enforcement and clean energy tax credits.

Nevertheless, Washington insiders and financial executives routinely muse about who might eventually replace her, with Commerce Secretary Gina Raimondo, Securities and Exchange Commission Chairman Gary Gensler and Deputy Treasury Secretary Wally Adeyemo seen as potential candidates.

“This is a way for her to fend that stuff off,” Myrow said. “It shores up her legacy [and] it’s also the type of thing you do if you’re trying to put down rumors of you leaving.”

Yellen’s legacy has faced hurdles. After reviving negotiations last year, she helped deliver an historic agreement among all 136 members of the Organization for Economic Cooperation and Development to establish a global minimum tax for corporations.

But Democrats ultimately scrapped the plan from the Inflation Reduction Act last month, following objections from Sen. Joe Manchin (D-W.Va.), whose support was essential to getting a deal through Congress. While other countries may move ahead with the plan, its future success is uncertain without the U.S. on board.

Still, she managed to notch another diplomatic victory on Sept. 2 after persuading the G-7 finance ministers to back the implementation of the Russian oil-price cap, a move Yellen hopes will avert a disastrous supply shock in December when new European energy sanctions take effect.

While some energy analysts are skeptical the plan will work, they said it’s an important win for Yellen and the administration.

“The thing that makes this such an accomplishment, before we even know if it works, is that this has the full weight of the G-7 behind it,” said Eddie Fishman, a Columbia University professor who led work on Russia sanctions at the Obama State Department. “It’s not just the U.S. It is the U.S. and its closest and most significant allies.”