President Biden said he would nominate Lael Brainard as the Federal Reserve’s vice chair, the No. 2 role at the Fed and one that could give her a stronger mandate to influence everything from the cost of money to the future of digital cash.
Ms. Brainard, who has been a Fed governor since 2014, is already part of the close inner circle of policy advisers of Jerome. H. Powell, the Fed chair. But her elevation to vice chair will make her Mr. Powell’s closest collaborator on monetary policy matters if she is confirmed by the Senate.
The vice chair holds little power officially, but in practice is regularly the person who floats new ideas in speeches and who helps to guide a Fed chair’s thinking on policy matters.
Ms. Brainard’s elevation comes at a pivotal economic moment. The Fed is wrestling with how to set policy at a time when inflation has shot higher but millions of jobs remain missing. Like Mr. Powell, Ms. Brainard has been wary of reacting to high prices too swiftly by lifting interest rates to choke off growth, worried that it could diminish job market opportunities. But both are carefully watching the price trajectory, with an eye on ensuring that high inflation does not become a long-lasting trend.
Ms. Brainard would be the third woman in the Fed’s 108-year history to hold the job, following in Janet L. Yellen and Alice Rivlin’s footsteps. Her new role would put her in a powerful position to weigh in on the path ahead for digital currency as the Fed contemplates whether it needs to issue one, something some other global central banks have done or are in the process of doing. Her more elevated position could also give her a bigger bully pulpit on climate-related issues.
She has been a major proponent of a more active Fed role in making sure the financial system is prepared for potential fallout from climate change. She gave a speech at the Fed’s first climate-focused conference in 2019 and has recently focused on the need for climate scenario analysis for banks, which would test how well they would hold up amid extreme weather events, sea level change and other climate-tied risks.
Ms. Brainard is a long-time Washington policymaker. She played a leading role in European debt crisis and Chinese currency deliberations during the Obama administration as a Treasury Department official, and she worked for the National Economic Council during the Clinton administration. She earned her economics doctorate at Harvard and was an up-and-coming professor at the Massachusetts Institute of Technology before moving to Washington to pursue a career in policy.
Ms. Brainard was initially viewed as a leading candidate for Biden administration Treasury secretary, though some progressive groups opposed her for the job. Many of those same people had pushed her as a candidate for Fed chair or another top leadership role, though — often based on her track record when it comes to financial regulation.
As the sole Democrat left at the Fed board in Washington after 2018, Ms. Brainard used her position to draw attention to efforts to chisel away at bank rules. In the process, she created a rare public disagreement at the consensus-driven central bank, dissenting from policy changes more than 20 times in 2019 and 2020.
Ms. Brainard often released detailed explanations of her dissents, laying out a roadmap of what changes were made and why they might be problematic. For instance, when the Fed streamlined its stress-test approach, she supported simplification in spirit — but disagreed with how it was done.
“Today’s rule gives a green light for large banks to reduce their capital buffers materially, at a time when payouts have already exceeded earnings for several years on average,” she argued, publishing an analysis of how she came to that conclusion, one that Mr. Quarles disagreed with.
While her new position will not give her more direct say over financial regulation than she previously had — governors all have a single vote on regulatory decisions — she and her record of dissents could be a resource for the new person coming into the Vice Chair for Supervision job.
Ms. Brainard’s international policy background will also mean that she can bring a global view to bear on monetary policy, a fact some commentators have been celebrating.