Brainard Gives Biden a Jobs Ally Alongside Fed’s Inflation Hawks
(Bloomberg) -- Lael Brainard, picked to be vice chair of the Federal Reserve, is expected to be a critical defender of its commitment to maximum employment across demographic groups at a time when other U.S. central bankers are more worried by inflation.
Her promotion from Fed governor is also the latest step in a career -- spanning top echelons of the federal government and academia -- that may eventually see her move even higher. She was interviewed by President Joe Biden for the post of chair before he opted to keep Jerome Powell at the helm and offer her the No. 2 slot instead.
Brainard is also co-author of the “broad-based and inclusive” language describing the Fed’s full employment mandate in the framework Powell unveiled in 2020 -- language was also in the last line of her acceptance remarks Monday. While Brainard sought to strike a balance with the Fed’s goal of controlling prices in her remarks Monday, she’s widely seen as someone firmly committed to spreading job gains as far and wide as possible.
“She will be an important anchor for the employment side of the mandate,” Julia Coronado, founder of MacroPolicy Perspectives, said after Biden’s announcement Monday. “She is not going to panic about inflation pressures that don’t look lasting.”
A respected Ph.D economist who’s argued for patience on removing support for the economy, Brainard, 59, said she was committed to putting working Americans at the center of policy, while also signaling that consumer prices -- rising at the fastest pace in 30 years -- will not be ignored.
“This means getting inflation down at a time when people are focused on their jobs and how far their paychecks will go,” she said in brief remarks at the White House with Biden and Powell. “It means supporting a growing economy that includes everyones.” Both picks require confirmation by the Senate, where some Republicans may oppose her.
U.S. central bankers are starting to worry that a sustained period of high inflation could unmoor public expectations about future prices, and some are calling for a faster withdrawal of the ultra-easy monetary policy the Fed has pursued since last year to protect the economy from Covid-19.
The Federal Open Market Committee held interest rates near zero earlier this month and began scaling back its monthly asset purchases at a pace that puts it on track to complete the process by mid-2022.
But data since that decision showing a 6.2% annual increase in consumer prices in October and more concern about inflation among households and businesses appears to have startled some officials.
“Policy may need to pivot to a faster taper based on incoming data that I will be monitoring,” Fed Governor Christopher Waller said in a Nov. 19 speech that didn’t dwell on the Fed’s description of maximum employment, which it overhauled last year to make it an explicitly inclusive goal.
Brainard has been a Fed governor since 2014 and Powell has intentionally brought her into closer consultation on monetary policy.
She is also co-author of the “broad-based and inclusive” language describing the Fed’s full employment mandate in the framework Powell unveiled in 2020 -- language was also in the last line of her acceptance remarks Monday.
Vice chairs can serve as board policy messengers and it would be an immediate achievement if Brainard articulated how the Fed is going to balance its two goals.
“They are going to liftoff” from zero interest rates “when they can say maximum employment is achieved,” said former Fed Governor Laurence Meyer. “She is going to be an important voice in that.”
The role of vice chair also elevates Brainard’s visibility as an obvious pick for another top policy position in the administration down the road.
“It is a higher-profile role than she previously had on the board, so when she speaks it will mean more,” said Jeremy Kress, an assistant professor of business law at the University of Michigan and former Fed board attorney. “Whether that leads to future opportunities, there are so many variables.”
A lot depends on how Brainard defines her role.
Vice chairs in the past have served as valuable chief operating officers such as Roger Ferguson, to close allies of the chair such as Donald Kohn, to somewhat independent voices such as Janet Yellen and Stanley Fischer.
Brainard’s brief currently at the board is expansive. She oversees Fed board operations, financial stability, payments, and reserve banks, while sitting on supervisory committees. By contrast, current Vice Chair Richard Clarida oversees the three research and forecasting divisions at the Fed and Powell entrusted him with some of the organization around the new framework.
David Wilcox, a former chief forecaster at the Fed board and now director of U.S. economic research at Bloomberg Economics, said she is already serving as a “key, discreet internal adviser and partner with the chair.”
At the same time, she conducts her own analysis and can articulate a different view from where the Fed consensus is standing, Wilcox said.
“She has done that with considerable political deftness,” he said.
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