As Lael Brainard was disappointed when she walked in front of a White House podium on Monday to accept Joe Biden’s nomination to become Vice President of the Federal Reserve, she did not show it.
For weeks, the 59-year-old Fed governor, considered one of the most talented Democratic economic policymakers of her generation, has been in the mix to lead the US Federal Reserve.
But in the end, not even an eleventh-hour campaign by progressive senators could secure her the top job, and on Monday, Biden confirmed the reappointment of incumbent Fed Chairman Jay Powell.
If confirmed by the Senate, Brainard’s elevation to the most important deputy position within the Fed would give her a more prominent place to formulate policy, and possibly a springboard to become Treasury Secretary or Fed chairman in the future.
The role of Fed Vice President – currently held by Richard Clarida, and in the past by officials including Donald Kohn, Stanley Fischer and Janet Yellen – is an influential one at the central bank, with the resident expected to provide intellectual support for policy shifts and to help signal any shifts to financial markets.
Biden presented his few choices as a team on Monday, and Brainard – who has already been seen as part of the inner circle on the Fed board – said she felt “privileged” to work with Powell on the central bank’s response to the pandemic.
But there were some areas of divergence between Brainard and Powell that could provide an early test of their new working relationship.
In the seven years that Brainard has served as a Fed governor, she has isolated herself on the issue of bank regulation, giving more than 20 times opponents to board votes on rule changes that would ease restrictions on the largest and most important financial institutions.
Her efforts to secure the post-global financial crisis regulatory apparatus have won her praise from progressive people, making her their preferred candidate for chairman over Powell, a former financier who has been criticized for a perceived weakness in his role as one of Wall Street’s main guard dogs. .
“What’s clear is that Lael Brainard was a strong opponent of deregulation,” said Jeremy Kress, a former lawyer in the Fed’s banking regulation and policy group.
She received further praise among Democrats for her commitment to strengthening rules on how banks serve disadvantaged communities and because she urged the Fed to take climate-related financial risks more seriously.
In the days leading up to Biden’s decision, Democratic senators singled out Powell’s less forceful approach to tackling such issues as the main argument for denying him a second term.
Meanwhile, some are worried that Brainard – who is considered a pigeon inflation and has advocated a patient approach to monetary tightening – may be more reluctant than Powell to move forward with interest rate hikes, as persistently high prices become a dominant concern for the central bank.
But others emphasize that she is still in line with the chair’s thinking, and very much a known amount when it comes to drafting policies. “She’s not like a stranger peeking in from Mars,” said Alan Blinder, the former Fed vice president and professor at Princeton University.
Brainard has also already shown signs of adjusting her views as economic conditions change. “She was with the Fed in challenging times and she had policy positions where she had to make difficult decisions,” said Randy Kroszner, the former Fed governor who overlapped with Brainard at Harvard University. “She is ready for battle.”
On Monday, Brainard apparently placed the fight against inflation at the very top of her agenda, suggesting that it is by no means a secondary concern to bring about full employment.
“I am committed to putting working Americans at the center of my efforts at the Federal Reserve,” she said. “It means lowering inflation at a time when people are focused on their jobs and how far their paychecks will go.”
Brainard’s policy experience dates back to service in the administrations of Bill Clinton and Barack Obama, in addition to a long period of working on global development at the Brookings Institution, a Washington think tank.
Under Obama, she served with the Treasury as deputy secretary of international affairs, as the US emerged from the financial crisis and faced the effects of a eurozone sovereign debt collapse that threatened US recovery.
She also helped manage economic relations with China as Washington’s stance toward Beijing began to become more confrontational.
Brainard was intimately involved in establishing the central bank’s new monetary policy-making framework in 2020. The result was that the Fed would not raise interest rates with the first hint of price pressure, as it traditionally did, but rather the economy would manage. “hot” to try to promote a stronger recovery that has benefited a broader group of Americans.
In practice, this has meant keeping rates at today’s near-zero levels until inflation averages 2 percent and the Fed reaches maximum employment. Brainard had a hand in ensuring that the latter goal was achieved in a “broad-based and inclusive” manner, and effectively promised that, this time, fewer Americans would be left behind as the economy recovered.
Claudia Sahm, a former Fed economist, said this shift was a “sea change” in monetary policy.
However, just over a year since its inception, the new mantra has come under pressure due to rising inflation. This allows Brainard, if confirmed, to help adapt the new framework to a very different economic reality than when it was unveiled.
This is an issue that will ensure a “trying” 2022, said Stephen Cecchetti, an economist at Brandeis University, who previously headed the monetary and economic division at the Bank for International Settlements.
Bill English, a Yale professor and former director of the Fed’s Department of Monetary Affairs, added: “When inflation and employment targets do not match, how do you choose? That issue could rise to a year within the next six months to a year. comes up pretty soon, and the Fed may have to respond.