Republicans are particularly fixated on Brainard’s attention to climate change and its threats to financial stability, as well as her consistent dissents against Fed policies that loosen Wall Street oversight.
Those concerns don’t seem likely to jeopardize Brainard confirmation. If anything, lawmakers’ primary focus is on how the Fed and its leaders will combat the largest threat to the economic recovery: inflation.
Prices rose at the fastest pace in four decades in December, increasing 7 percent over the same period a year ago. There’s no telling when inflation will fall to more sustainable levels, especially as the pandemic keeps its hold on the path ahead.
Meanwhile, inflation has become a charged issue in Washington and a serious political handicap for the Biden administration. That’s especially the case since rising costs for groceries, rent and gas can be households’ most tangible litmus test for how the economy is performing.
At Thursday’s hearing, Brainard said it was the Fed’s crucial job to get inflation under control. Fed policymakers have forecast what could be three interest rate hikes this year, possibly starting in March. But they must execute their policies in a way that doesn’t hurt growth in the labor market or even cause a recession.
“Inflation is too high, and working people around the country are concerned about how far their paychecks will go,” Brainard said. “Our monetary policy is focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone. This is our most important task.”
Pulling that off is a heady challenge. For much of 2021, Fed leaders expected inflation would be a temporary feature of the pandemic economy, and they held off on reining in prices so that the labor market could have room to grow. But price increases have seeped into just about every corner of the economy, bolstered by global supply chain backlogs, high consumer demand, worker shortages and an ongoing list of complications triggered by the pandemic era.
Plus, the Fed’s tools are broad-based. Higher interest rates operate with a lag and can’t end a pandemic or mend a broken supply chain.
“We have a set of tools. They’re very effective, and we will use them to bring inflation back down,” Brainard said. “Sector to sector, there are microeconomic issues — market structure, supply chain disruptions — at work. That’s not where our tools are effective.”
Brainard was repeatedly questioned on how the Fed plans to address climate-related risks in its regulation and supervision of big banks. Sen. Patrick J. Toomey (R-Pa.) has long criticized the Fed for its attention to climate change, saying that’s outside the central bank’s dual mandate of stable prices and full employment.
“Not only does the Fed lack expertise in environmental matters, but there is no reason to believe that global warming poses a systemic risk to the financial system,” Toomey said Thursday.
Brainard said the Fed would never tell banks which businesses or industries they could lend to, or not. Rather, the focus is on helping banks measure, monitor and manage their own vulnerabilities, even if the chances of a sudden or devastating climate event are small.
“Tail risks are risks that have very, very low probability of happening but have extreme damage,” Brainard said. She added that she wouldn’t have expected the economy would be rocked by a global pandemic. Yet, “a lot of our policymaking over the last two years has been under the cloud of a very complicated set of economic conditions.”
In November, Biden jointly announced Powell’s renomination as chair and Brainard’s elevation to vice chair. At the time, Biden said that Brainard, “one of our country’s leading macroeconomists — has played a key leadership role at the Federal Reserve, working with Powell to help power our country’s robust economic recovery.”
Some Fed experts think Brainard’s confirmation will be less of a political fight since Biden opted to keep Powell, a Republican, as Fed chair. Meanwhile, the White House is also closing in on three remaining nominations to the Fed board and strongly considering Sarah Bloom Raskin, Lisa Cook and Philip Jefferson to complete the slate. The Fed’s board has seven seats in total.
Biden initially said those announcements would start in early December. On Wednesday, White House economic adviser Brian Deese said Fed candidates would be “in place at the appropriate cadence.” It’s entirely unclear when the remaining nominees will be announced or how long it will take for them to be confirmed.
In her time at the Fed, Brainard has amassed a broad portfolio. She became the leading voice for tighter oversight of Wall Street, regularly dissenting on policies that loosen regulations put in place after the Great Recession. Brainard also led the modernization of the Community Reinvestment Act, which was crafted to encourage banks to lend in low-income neighborhoods.
In 2020, 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. During Thursday’s hearing, Brainard noted that she worked closely alongside Powell and President Donald Trump’s treasury secretary, Steven Mnuchin, on the Fed’s emergency response as the pandemic sent the economy into free fall.
Before joining the Fed, Brainard served as undersecretary for international affairs at the Treasury Department and a top deputy to then-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.
If confirmed, Brainard would succeed Fed Vice Chair Richard Clarida, who announced this week that he will resign following more revelations of his stock trading at the beginning of the coronavirus pandemic. Clarida is the third Fed official in recent months to resign over questionable trades during the pandemic, as the Fed began its tremendous intervention to support the financial system.
Brainard said she didn’t believe the Fed had a broader cultural problem that led to the stock-trading scandals. But she said, “I think we’ve all been surprised and dismayed by some of the financial disclosures.”