Janet Yellen, the former Fed Chair and who will be the Treasury Secretary of the Biden administration, focused on fiscal incentives, the value of the USD and the market approach at this point, as expected in her mandate in the Senate. Financial sustainability is an important issue, so it is critical to address the need for broad implementation of incentives. It remains unclear how much Biden's 1.9 trillion USD package will be interrupted at the Senate stage. The most critical point here is definitely the need to improve the situation of households. This requires financing of small businesses and improved employment, especially in rural and local areas. SME style and local businesses have a significant role in the recovery in overall employment. Yellen stated that she would work for a second support package if approved as Treasury Secretary.
As for the competitiveness of the economy and the USD; Discourses from the Trump era are retreating. Against Trump's constantly demanding weak USD and low interest rate, Yellen emphasized that "the value of the USD is determined by the market". In other words, if the market dynamics and supply / demand balance are against the USD, it will be worthless and if not, then valuable in favor. Most importantly, the US will not keep the value of the USD low to create a trade surplus. This means that the US trade deficit will start to grow again. Good news for exporting countries, but still much waiting for tariffs to be eased. The Treasury is keeping a close eye on some countries for currency manipulation, and Switzerland has recently been declared a "manipulator". There are 3 criteria for a country to be declared as a currency manipulator: To give at least 20 billion USD of trade surplus against the USA, 3% or more of the current account surplus to GDP, constant intervention in exchange rates ...
Since the economic dynamics that will require the Fed to maintain its current policy base are still valid, "tapering" cannot be the subject of the time period we are in. First of all, it is necessary to see the effect of the recovery in the economy with the effect of vaccination and financial incentives, and then it will be important that the service sector recovery creates a sustainable demand cycle in the economy. In this process, inflation will remain above the target for a while. If 2021 passes as a good year, this issue can be seriously addressed for 2022, and this will be guided by the last few months of this year. It is reassuring to have Yellen at the head of the Treasury and Powell from the Yellen school at the head of the Fed. The possibility of insufficient financial incentives is still a risk, and the first thing we need to monitor carefully after Biden moves to the office today will be the Congress process of the Biden package.
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