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What Brainard gains — and what Powell loses — from her move to the White house

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The move by Lael Brainard from the No. 2 slot at the Federal Reserve, often called the world’s central bank, to become a senior White House staffer looks hard to explain on the surface but underneath makes a lot of sense, Washington insiders said Tuesday.

“It may seem like a demotion for Brainard, but there’s a longer game for her,” explained Beacon Policy Advisors, in a note to clients.

It is not easy to get into President Joe Biden’s inner circle and it will help her build a rapport with the person who previously passed her over for two bigger roles, Federal Reserve chairman and Treasury secretary, Beacon noted.

“Biden is notoriously a relationship-driven person. He doesn’t trust you just because you have a resume,” said Julia Coronado, president of MacroPolicy Perspectives, and a former Fed staffer.

Read more: Lael Brainard, Jared Bernstein named by Biden to top White House economics roles

The knee-jerk reaction on Wall Street that the Fed will be somewhat more hawkish after Brainard departs is misplaced, analysts said. She was a “center-dovish” member of the central bank, said Krishna Guha, vice chairman of Evercore ISI.

Coronado said Brainard wouldn’t have left the Fed if it wasn’t “packed with people” on the same center-dovish wavelength.

In the past year there has been extraordinary turnover at the central bank. Biden has picked three new Fed governors. In addition, the Dallas, Boston and Chicago Feds have each chosen new presidents.

“There is a budding new FOMC for her to hand the baton to,” Coronado said.

Ian Katz, managing director of Capital Alpha Partners, agreed: “On monetary policy, Brainard’s departure is not going to make a big difference.”

That’s not a knock on Brainard, Katz said. There are 12 voting members on the Fed’s interest-rate committee and it’s hard for a single member besides the chairman to stand out, he said.

Brainard was the sole nominee of President Barack Obama left on the Fed when President Donald Trump selected Powell to become chairman in early 2018. She didn’t work with another Fed governor appointed by a Democrat until last May.

During that period, Brainard was a lone voice arguing against rolling back some of the strict rules put on banks in the wake of the financial crisis.

Powell will miss Brainard because she took political heat on issues where congressional Republicans were unhappy with the Fed’s stance, Coronado said.

In addition to pushing for strong bank oversight, “Brainard went toe-to-toe with the Trump administration on rewriting the Community Reinvestment Act,” Coronado said.

The Fed would not go along with the Trump White House’s efforts to weaken the 1977 law. And last year, the three banking regulatory agencies, led by Biden White House nominees, agreed on a common framework to update it.

That law requires the Fed and other banking regulators to encourage banks to lend to low-income neighborhoods.

Brainard also took the lead on pushing the Fed to adopt new processes to grapple with the risk of climate change to the banking sector and the overall economy.

Brainard simply “did a lot of work,” Coronado said. At the moment, she chairs four of eight subcommittees on the Fed’s Board of Governors.

Powell, in a statement, said Brainard “has brought formidable talent and superb results to everything she has done at the Federal Reserve. My colleagues and I will truly miss her.”


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