The decision comes at a highly consequential time for the economy and Biden’s political message. The Fed is charged with keeping prices stable and getting the economy to maximum employment, and it is being tested on both fronts. Inflation has soared to 30-year highs, with prices rising in much wider swaths of the economy than policymakers expected. There doesn’t appear to be much daylight between the views of Powell and Brainard on inflation. Nevertheless, Biden’s pick to lead the Fed must manage this rocky phase of the coronavirus era — and get it right.
Brainard’s supporters say her career as an economist and policymaker over three decades is a good match for Biden’s economic agenda. Since joining the Fed in 2014, she has been the leading voice for tighter oversight of Wall Street, opposing policies that loosen regulations put in place after the Great Recession. She has warned about how climate change can hinder economic activity and how big banks’ exposure to climate-related risks could threaten the broader financial system. She is also the only Democrat on the Fed board. Powell is a Republican.
“Governor Brainard has much more alignment with the Democrats and with the administration than any other possible candidate to chair the Fed,” said Simon Johnson, an economist at the Massachusetts Institute of Technology who supports Brainard for chair. “And not only that, she’s eminently well qualified.”
Still, Biden’s decision on the Fed chair poses a tricky political question. While Powell’s critics on the left say he has not been forceful enough on climate policy or banking regulation, many of those same critics have not, in turn, rallied behind Brainard.
In fact, a year ago, some liberal groups campaigned against Brainard when she was in the running to become Biden’s treasury secretary, arguing, in part, that Brainard was too moderate. Then again, a Fed nominee who is much further to the left would face an even tougher confirmation battle in a Senate split 50-50, Fed watchers say.
“Brainard should not end up framed out of this as the person from the left,” said Jeff Hauser, director of the Revolving Door Project at the left-leaning Center for Economic and Policy Research. “It’s neither accurate, nor obviously helpful.”
Brainard declined to comment. Yet her supporters say her credentials make the case for why she should run the Fed, which is undergoing significant turnover within its top ranks. In addition to the chair, Biden is expected to announce a group of nominees, including for vice chair (the Fed’s No. 2 job) and vice chair for supervision (the Fed’s top banking cop). There is also one vacant seat on the board of governors. Such a slate gives Biden a major opportunity to reshape the Fed when much of Washington is fixated on how the central bank should tackle inflation and other economic challenges.
Brainard served as undersecretary for international affairs at the Treasury Department and a top deputy to Treasury Secretary Timothy F. Geithner in the wake of the Great Recession. Brainard led coordination of the Obama administration’s global economic and financial policy, including during Europe’s sovereign-debt crisis.
Between 2001 and 2008, Brainard was vice president and the founding director of the Global Economy and Development program at the Brookings Institution. She also served as deputy national economic adviser in the Clinton White House during the Asian financial crisis. She received a PhD in economics from Harvard University and taught economics at the Massachusetts Institute of Technology.
As a Fed governor, Brainard is credited with helping push the central bank toward its recently revised monetary policy goal, which allows inflation to go temporarily above the Fed’s target if that means more people can get into jobs.
Brainard cautioned against the Fed hiking interest rates years before the framework was unveiled, when Fed leaders debated when to cool the economy down and prevent inflation from rising, even if that meant slowing the labor market. The Fed’s gradual rate increases starting in 2015 have since been criticized as undercutting full employment after the Great Recession. In a speech last year, shortly after the rollout of the new policy framework, Brainard suggested the Fed’s old ways risked “an unwarranted loss of opportunity for many Americans.”
“The case for her is actually a very straightforward case,” said Skanda Amarnath of Employ America, a left-leaning think tank that advocates that the Fed let the economy run hot and has not endorsed a Fed candidate. “Since she joined the Fed, she’s had a pretty generous view of what was possible in the labor market. And she’s had a view that’s also, for the most part, been validated.”
The pandemic has tested that framework in ways policymakers couldn’t have expected. Brainard has said she expects inflation to cool down as coronavirus disruptions ease up. Meanwhile, she has said she is keeping a close eye on housing costs, whether wage gains are feeding into higher inflation dynamics, and whether longer-term inflation expectations move up to unsustainable levels.
“With delta disrupting the rotation from goods to services and prolonging supply bottlenecks, it is uncertain just how fast and how much inflation will decelerate over the remainder of the year and into next year,” Brainard said in a September speech.
Still, Fed leaders say they won’t raise rates until the labor market has fully healed. Brainard has spoken about the need for patience so that the recovery can be broad-based and inclusive.
“The deep and disparate damage caused by the pandemic, coming just over a decade after the financial crisis, underscores the vital importance of full employment, particularly for low- and moderate-income workers and those facing systemic challenges in the labor market,” Brainard said in January.
Brainard has also amassed an unusually large portfolio at the Fed. Last year, Powell brought Brainard into the Fed’s close inner circle — a group traditionally confined to the Fed chair, vice chair and New York Fed president — that shapes the monetary policy agenda. She has led the modernization of the Community Reinvestment Act, which was crafted to encourage banks to lend in low-income neighborhoods.
She has also highlighted the risks climate change could pose to the economy and financial system. In an October speech, Brainard offered the Fed’s clearest signal yet that it will start reviewing big banks’ exposure to climate risk, with tests known as “scenario analyses” emerging as a key tool. Brainard also said it would be useful for the Fed to provide guidance to large banks in their efforts to measure and curb climate risks.
“Although we should be humble about what the first generation of climate scenario analysis is likely to deliver, the challenges we face should not deter us from building the foundations now,” Brainard said.
Brainard has earned praise from the left for consistently opposing the Fed’s moves to pare back Wall Street oversight, even when the economy was doing well. Votes by the Fed board are typically unanimous. But in the past few years, Brainard has issued roughly 20 dissents on a range of regulatory issues.
In an August interview with Bloomberg TV, Sen. Elizabeth Warren (D-Mass.) praised Brainard’s “strong and powerful dissents” and said Brainard “makes a good case for why it is the job of the Federal Reserve to be that cop on that beat.” Warren has since come out against Powell getting a second term, calling him a “dangerous man.”
But Warren has not publicly endorsed Brainard or another candidate. Neither did a group of liberal Democrats on the House Financial Services Committee when they called on Biden in August to replace Powell and pick someone more aggressive on climate and financial regulation. Amarnath, of Employ America, described a degree of wobbling among advocacy groups that want an alternative to Powell but opposed Brainard for treasury secretary last year.
If Brainard is not made chair, many Fed watchers anticipate the White House would tap her for vice chair or vice chair for supervision. Those experts say the supervision role, in particular, would give her crucial authority over the Fed’s regulation of Wall Street, including on climate issues.
But it’s unclear whether a role other than chair would be an attractive offer. Some close to the White House and Capitol Hill privately speculate that Brainard could be Biden’s next treasury secretary if Janet L. Yellen eventually steps down.
The White House is expected to make a decision soon.
Jeff Stein contributed to this report.