One particularly interesting area to watch will be the relationship between fiscal policy — the power to tax and spend, soon to be partly under Ms. Yellen’s stewardship — and her former domain of monetary policy, the power to adjust the supply of money. Those lines have become more blurred this year. The pandemic response has been organized as a joint effort between the Treasury, which is putting up billions of dollars in capital to support debt markets, and the Fed, which administers the programs and lends billions more from its own limitless balance sheet to make them more powerful.
But there have been clear schisms thus far. The Fed has been more inclined to structure the programs to help the economy more but with greater risk that the Treasury will lose money, while the Trump Treasury has been more cautious.
Meanwhile, the Fed is buying vast sums of Treasury bonds and keeping interest rates close to zero indefinitely, seeking to stimulate the economy — and effectively giving the government carte blanche to spend as necessary to contain the economic fallout of the pandemic. It raises knotty questions about just how independent the central bank is, and should be, from the rest of the government at a time of crisis.
Ms. Yellen will approach these questions steeped in the institutional values of the Fed, where she started her career as a young researcher. She has served as president of the San Francisco outpost of the central bank, as its vice-chair, and four years as its leader. She and Jerome Powell, the current Fed chair, were colleagues for many years. She entrusted him with much of the hard, unglamorous work of overseeing the central bank’s operations.
When she and Mr. Powell have the regular breakfasts and lunches that are typical for the occupants of their jobs, there will be an irony that she, as an economist, has a more conventional résumé for a Fed chair and he, a lawyer and former Wall Street and Treasury official, has a job history more typical of a Treasury secretary.
Still, expect her to push for more liberal use of emergency credit facilities to support the economy, while also maintaining a relatively traditional view of the importance of Fed independence and its ability to shape monetary policy without being second-guessed by political authorities. A Treasury secretary with less attachment to the Fed might take a more flexible view of the roles of the two organizations.