However, she is also wary of federal budget deficits in the long run. In one speech last year to a housing trade group, she said that Social Security and Medicare might not get on a path to a solid footing even if taxes are raised to help fund the programs, and warned of painful tradeoffs. "This is root canal economics," she said.
Some former colleagues say Ms. Yellen's political strengths are underrated. "People underestimate the internal politics of the Fed," said Daniel Tarullo, who was a Fed governor from 2009 to 2017. Fed leaders need to manage a large committee to reach consensus on interest-rate decisions. Mr. Tarullo said Ms. Yellen was "persistent and persuasive" in managing dissent at the central bank.
She briefed Mr. Biden and Sen. Kamala Harris, now vice president-elect, by videoconference in August, and encouraged more spending to boost growth by highlighting the prospect for interest rates to stay low for a long time. She wrote an opinion piece around the same time with Jared Bernstein, a member of Mr. Biden's economic inner circle, in the New York Times that made the same appeal for continued stimulus.
Some economists expect inflation to pick up as the economy recovers, but Ms. Yellen said this summer she saw a bigger risk that policymakers wouldn't do enough to spur a stronger recovery. "With inflation as low as it is, servicing the debt required by the one-two punch of aggressive monetary and fiscal policies is relatively inexpensive," she wrote in the op-ed.
"Yellen is a clever choice. She will be able to argue for larger stimulus with an intellectual heft that has eluded Democrats so far," said Marc Sumerlin, a former economic adviser to former President George W. Bush. She might seek ways "to delegate on the late-night horse-trading and partisan rhetoric," Mr. Sumerlin said.
Depending on the outcome of two January runoff elections in Georgia, Republicans could maintain control of the Senate, leaving Majority Leader Mitch McConnell (R.,Ky.) as the Senate gatekeeper for legislation and nominations.
Jacob Lew, Treasury secretary from 2013 until 2017, said Ms. Yellen might find allies in moderate Republicans in the Senate. If she wins over three or four Republicans, he said, that could tilt the balance in Mr. Biden's favor in looming debates.
"If the question is who can force Mitch McConnell's hand, that's not a fair test," said Mr. Lew. "The real question is what does it take to persuade a majority in the Senate, and Janet Yellen has enormous capability" to achieve that.
Mr. Biden has calculated that Ms. Yellen can bridge a range of divides that will confront his administration. She enjoys credibility in global financial markets and foreign capitals. She also has alliances among Democratic Party moderates as well as progressives, due in part to her friendship with Sen. Elizabeth Warren (D., Mass.), who endorsed her expected nomination.
One of her first tasks will be deciding whether to push for a restart of emergency lending programs launched by the Fed this year directing low-interest loans to small and midsize businesses affected by Covid-19 shutdowns. Though managed by the Fed, the programs depend on collaboration with the Treasury, which provides some of the money.
Last week, Treasury Secretary Steven Mnuchin declined a request by the Fed to extend the programs when they expire on Dec. 31. He said that he lacked the authority to provide an extension, a legal opinion not shared by the Fed, and also that money used to backstop Fed loans would be better used on grants for the unemployed and businesses.
In a possible sign of what's to come, Sen. Pat Toomey (R., Pa.) signaled resistance if Ms. Yellen tries to restart the programs. In a statement Monday night, Mr. Toomey, who is set to head the Senate Banking Committee if Republicans maintain control of the Senate, said he wanted to make sure Ms. Yellen would abide by his interpretation of the March funding law that keeps the Fed's lending programs "shut down absent further congressional action."
He added he has nothing against Ms. Yellen herself. "While Dr. Yellen and I had our fair share of disagreements during her tenure as chair of the Federal Reserve, I have no doubts about her integrity or technical expertise," Mr. Toomey said.
Write to Jon Hilsenrath at jon.hilsenrath@wsj.com and Nick Timiraos at nick.timiraos@wsj.com
(END) Dow Jones Newswires
11-24-20 2118ET
