[Good Morning Stock Market] Biden Administration Cabinet Appointments Begin in Earnest... Focus on Market Impact

Former Federal Reserve Chair Janet Yellen (Photo by AP)

[Asia Economy Reporter Kum Bo-ryeong] On the 23rd (local time), U.S. President Donald Trump issued a directive to cooperate with the transition process for the first time, and President-elect Joe Biden is announcing some members of his administration's cabinet. With reports that former Deputy Secretary of State Tony Blinken is nominated as Secretary of State and former Federal Reserve Chair Janet Yellen is expected to be nominated as Treasury Secretary, the market is paying close attention to the impact they may bring.

◆ Hee-jin Kwon, Researcher at Korea Investment & Securities = Since the Treasury Department is the organization that establishes and executes the economic policy plans of the U.S. administration, it is necessary to consider what implications President-elect Biden’s selection of former Chair Yellen as head of the Treasury holds for the economy.

While Yellen is familiar as the Fed Chair, her original identity is that of a labor economist who has published numerous papers on unemployment and wages since the 1980s. We judge that Biden’s nomination of Yellen as Treasury Secretary shows the blueprint of the next administration’s 'employment-centered' economic policy. It can be interpreted as a commitment to use active fiscal policy focused on restoring lost jobs first to recover from the COVID-19 pandemic and stimulate the economy. Although the soaring unemployment rate is gradually falling, the number of permanent unemployed?those who can be considered 'real unemployed' excluding temporary layoffs?is still increasing at around 4.5 million.

Of course, the final review and approval of the federal budget is done by Congress, and it is unlikely that the Democrats will hold a majority in the Senate. Therefore, it is difficult to expect a significant increase in federal government spending solely due to these appointments. Rather, it is appropriate to interpret that the Biden administration’s economic policy will not follow the policy stance of raising funds through wealth tax introduction and corporate tax rate hikes advocated by Senator Elizabeth Warren, who was considered a candidate for Treasury Secretary before the election, but will likely be oriented toward moderate stimulus policies centered on job creation.

If former Chair Yellen enters as Treasury Secretary, the Fed can expect a reduction in discord with the government. At least, Yellen is unlikely to interfere with monetary policy. Instead, she is expected to prioritize policies that stabilize the labor market, where she can demonstrate her greatest capabilities.

In a situation where the boundaries between monetary and fiscal policy have somewhat blurred due to COVID-19, if both share the same goal of employment stability, policy uncertainty will decrease compared to now. The significance of Yellen’s nomination as Treasury Secretary can be found here. From the bond market perspective, it can expect a resolution of monetary policy uncertainty. This will help control the pressure of rising interest rates due to economic recovery and inflation rebound in 2021, preventing a sharp rise in bond yields.

◆ Ji-woo Lim, Researcher at Korea Investment & Securities = Unlike the Trump administration, the Biden administration will see a decrease in presidential spotlight and an increase in the importance of the cabinet. The nominated individuals do not deviate much from the Obama administration era. They appointed proven figures who have worked together before. The composition of personnel is firm for returning from America First to U.S.-led multilateralism and re-pursuing eco-friendly policies, similar to four years ago. However, attention should be paid to the tougher stance on North Korea and stronger commitment to environmental and fiscal policies compared to before.

For South Korea, where the North Korea issue is important, the Secretary of State is one of the most watched positions. However, Tony Blinken, nominated as Secretary of State this time, is a somewhat complicated counterpart for South Korea regarding North Korea issues. He has frequently mentioned North Korea in the past with a very negative and strong distrustful tone. In a 2018 New York Times op-ed, he called North Korea a 'gulag state,' and in interviews, he referred to Chairman Kim Jong-un as a tyrant, expressing hostile feelings. Since Blinken criticized President Trump’s North Korea policy centered on summits and top-down diplomacy, there is a high possibility that the approach to North Korea will be completely reversed. This is bad news for the South Korean government, which has been trying to continue summit diplomacy. Blinken was one of the figures who led the Iran nuclear deal and has often indicated in previous interviews that a similar strategy should be applied to North Korea. This involves a step-by-step approach of providing rewards in exchange for denuclearization, which requires cooperation from neighboring countries, making it unfavorable for improving inter-Korean relations.

However, from a market perspective, volatility may actually decrease, which could be advantageous. Although it has become difficult to expect a surprise that would eliminate the North Korea discount through dramatic agreements with North Korea, the uncertainty experienced during President Trump’s term will certainly be reduced.

This content was produced with the assistance of AI translation services.