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

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An earlier version of this story incorrectly described how many Fed governors nominated by President Barack Obama remain on the Fed board. Fed Chairman Jerome Powell was appointed twice by Obama.

Lael Brainard’s move 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 actually makes a lot of sense, according to Washington insiders.

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

It is not easy to get into President Joe Biden’s inner circle, and her new role as head of the National Economic Council will help Brainard build a rapport with Biden, who previously passed her over for two bigger roles — Fed chair 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 chair of Evercore ISI.

Coronado said Brainard would not have left the Fed if it weren’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 named three new Fed governors, and the Dallas, Boston and Chicago Feds have each chosen new presidents.

“There is a budding new [Federal Open Market Committee] 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 other than the chair to stand out, he said.

Brainard never dissented from a Fed interest-rate committee decision.

Former Fed Vice Chairman Alan Blinder said he was worried that Brainard’s absence might weaken the dovish presence at the Fed.

“Lael was a leader of the dove faction, and now she’s going to leave,” Blinder said, in an interview on CNBC.

Decisions on interest-rate policy can been seen as a “battle for Powell’s mind,” Blinder said.

“Brainard was an influential part of that battle, and now she’ll be gone,” he said.

Brainard, who had worked at the Obama Treasury Department, was often 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, Coronado said, because she took political heat when congressional Republicans were unhappy with the Fed’s stance on issues.

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 borrowers in 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
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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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