Lael Brainard, Donning a Global Lens, Champions Low Rates at Fed
By BINYAMIN APPELBAUM
WASHINGTON — Lael Brainard is poised to win another round this week in her fight for the Federal Reserve to keep interest rates low.
Ms. Brainard, a Fed governor in Washington since 2014, has emerged over the last year as a leading advocate for patience, pressing the case that low rates are important for domestic economic growth and for global stability.
The Fed is expected to announce on Wednesday, after a two-day meeting of its policy-making committee, that it again will pass on an opportunity to increase its benchmark interest rate, although officials have said they are still considering rate increases later in the year.
Ms. Brainard has become the leading voice among Fed officials for a concern widely shared among left-leaning economists: that the central bank will raise rates too quickly, potentially stifling economic growth. It is a role that has raised her profile in Democratic circles, and driven speculation that she is in line for a top job if Hillary Clinton wins the White House.
Gene Sperling, a longtime Democratic policy maker who is now advising Mrs. Clinton’s presidential campaign, hired Ms. Brainard as his deputy at the Bill Clinton White House in the mid-1990s. He said he was tickled that lately, when he gives public speeches, he is often asked about her views.
“My outside impression is that she has been as much a champion as anyone on the inside for the go-slow, full-employment perspective that many of us on the outside are advocating for,” Mr. Sperling said.
Ms. Brainard has fueled the talk about her future by donating $2,700 to the Clinton campaign — the maximum amount an individual can give — raising eyebrows at the Fed and among congressional Republicans. Mrs. Clinton has said she intends to fill half her cabinet with women, and Ms. Brainard is among the few widely regarded as having the relevant credentials to serve as United States trade representative — or, even better, Treasury secretary, a job no woman has ever held.
Senator Richard Shelby, the Alabama Republican who heads the Senate Banking Committee, which oversees the Fed, said Ms. Brainard’s donations “call into question the political independence” of the central bank. Fed officials have said that Ms. Brainard did not violate any rules.
Ms. Brainard declined to be interviewed for this article. The description of her views is based on her public remarks and the accounts of others.
Ms. Brainard’s case for caution combines the idea that the domestic economy is not ready for higher rates, with something new and controversial: that the Fed should care about other countries.
The American economy, until recently, seemed impervious to all but the largest global shocks. But the integration of financial markets has increased the importance of events elsewhere. The rest of the world plays a growing role in determining American mortgage rates.
“The world has just changed fundamentally,” Ms. Brainard said at a New York conference in February. “What China does matters to the U.S.”
In placing greater weight on the global economy, Ms. Brainard has argued that the Fed needs to consider the impact of its decisions on other countries. She said at the February conference the Fed might achieve better results by coordinating with other central banks.
Otherwise, she said, countries may simply steal growth from one another.
“There is a risk that uncoordinated policy on its own could have the effect of shifting demand across borders rather than addressing the underlying weakness in global demand,” she told an audience of academics and policy makers at the United States Monetary Policy Forum.
This view has drawn criticism both inside and outside the Fed.
Laurence Meyer, a former Fed governor who argued with Ms. Brainard at the February conference, said in a recent interview that Congress had instructed the Fed to focus on the United States.
“I tell other central banks, ‘I’m really sorry to tell you this, but the Fed doesn’t care about you at all,’” said Mr. Meyer, who runs L. H. Meyer, a research firm. “You can say that’s very nasty, very selfish. But do you think that other central banks care about us? Of course not. They don’t want us to hurt them, but they don’t care what their actions do to us.”
Others, however, say a recalibration is overdue. Eswar Prasad, a professor of international economics at Cornell University, said financial integration had clearly amplified the Fed’s role in the global economy, even if the contours were just beginning to be understood.
“Many people have taken an ostrich ‘head in the sand’ approach,” he said. “But the financial channel is clearly a crucial one, and the fact that it is not well understood is not an excuse for ignoring it.”
Ms. Brainard was raised to see America in the context of a broader world. As the daughter of a State Department diplomat, she spent parts of her childhood in communist Poland and in East Germany.
“She is basically an internationalist,” said Edwin M. Truman, a fellow at the Peterson Institute for International Economics who worked with Ms. Brainard in both the Clinton and Obama administrations. “That’s not particularly popular these days, but she lives and breathes the idea we’re all in the same boat and we need to cooperate. And cooperating doesn’t mean do what the U.S. says — or else.”
Ms. Brainard, who holds a doctorate in economics from Harvard University, was hired in 1997 as Mr. Sperling’s deputy on the National Economic Council. Mr. Sperling, then 38, said he was advised to find a more experienced deputy than Ms. Brainard, then 35. But she was already working at the White House, and each time he interviewed someone else, he came away convinced that Ms. Brainard was a superior choice. Ms. Brainard later served as President Clinton’s “sherpa,” or liaison, to the Group of 8 industrial nations.
“She’s supersmart, well prepared, even-tempered,” said Mr. Sperling, who worked with Ms. Brainard in the Obama administration. “Anything she touches will be done to the highest standards.”
After spending eight years at the Brookings Institution, waiting out George W. Bush’s presidency, she joined the Obama administration as under secretary for international affairs at the Treasury Department. In that role, she spent long hours trying to cajole European leaders into addressing the continent’s problems with greater vigor. She also played a leading role in selling an overhaul of the International Monetary Fund’s ownership structure that gave greater control to emerging economies, principally China, at the expense of advanced economies, particularly in Europe.
Ms. Brainard is “not a backslapper,” said Mr. Sperling, but she has developed a reputation as a subtle but unbending advocate for the goals she is assigned to pursue.
Mr. Prasad, a former official at the International Monetary Fund, said Ms. Brainard conveyed a sense of empathy and respect for the interests of other countries. “She did not come across as a very aggressive advocate, so she was a very effective advocate,” he said. “She has a lot of credibility with policy makers around the world as a consequence of that, especially in emerging markets.”
Ms. Brainard joined the Fed in the summer of 2014, but she said almost nothing about monetary policy until October 2015, as the Fed prepared to raise rates for the first time since the financial crisis.
The move was hotly criticized by left-leaning economists and by centrist Democrats like Lawrence H. Summers, the former Treasury secretary. And in that October speech, Ms. Brainard chimed in, breaking with the Fed’s chairwoman, Janet L. Yellen, to argue that the Fed was overstating the risk of inflation and underestimating the threat of a global downturn.
Ms. Brainard and Daniel Tarullo — a fellow governor and former colleague in the Clinton administration who raised similar concerns — ultimately acquiesced in the Fed’s December increase, providing Ms. Yellen with unanimous support.
While regional reserve presidents frequently dissent, no Fed governor has done so in the last decade.
But since December, Ms. Brainard’s public speeches have become more frequent and more forceful. And maybe she won’t need to formally dissent. After all, the Fed, which entered the year predicting that it would raise rates four times, has yet to move again.