By Ann Saphir and Howard Schneider
(Reuters) – Controlling inflation that has spiked to nearly a 40-year high is the “most important task” facing the Federal Reserve right now, Fed Governor Lael Brainard said in prepared remarks for a Senate hearing on Thursday on her nomination to become vice chair of the U.S. central bank.
“We are seeing the strongest rebound in growth and decline in unemployment of any recovery in the past five decades,” Brainard said in comments to be delivered to the Senate Banking Committee. “But inflation is too high, and working people around the country are concerned about how far their paychecks will go. Our monetary policy is focused on getting inflation back down to 2 percent while sustaining a recovery that includes everyone. This is our most important task.
Brainard is scheduled to begin her testimony at 10 a.m. EST (1500 GMT) in a session that could mark the start of a broader and potentially bitter partisan contest over the make-up of the Fed’s seven-member governing board.
Only four of those seats are filled right now, and pending Biden appointments, including for a second vice chair’s slot overseeing financial regulation, could advance what he and his Democratic supporters feel should be a bigger Fed role on climate issues and a tougher hand with Wall Street.
Brainard, a Democrat first appointed to the Fed in 2014 by then-President Barack Obama and confirmed at the time by a 61-31 vote, would be a prominent player in that effort.
She is a veteran of U.S. economic policymaking, and in her remarks noted that she had “worked on the U.S. policy response to every major financial crisis over three decades” as a member of past Democratic administrations and more recently at the Fed.
In her prepared remarks, which were released by the Fed on Wednesday, Brainard said she was “committed to the independent and nonpartisan status” of the central bank, and promised an “independent voice.”
As a Fed governor she was a frequent dissenting vote against steps taken during former President Donald Trump’s administration and under Fed Chair Jerome Powell to loosen oversight of the largest banks; called for the Fed to require financial firms to set aside more capital; and worried that Fed officials were behind European central bankers in understanding how climate change may effect the macroeconomy and financial system.
Conservative groups like the Club for Growth, as a result, have tried to build the case against her confirmation as vice chair, and Republican senators have flagged a fight to come: at Powell’s own confirmation hearing this week one Republican senator asked whether he risked being outnumbered if Brainard is confirmed along with the other expected Biden appointments to the Fed’s board.
Brainard’s confirmation hearing will be held jointly alongside that for Sandra Thompson, who has been nominated by Biden to be director of the Federal Housing Finance Agency. Thompson is currently FHFA’s acting director.
The Fed’s vice chair has a central role in shaping monetary policy, which is now being shifted away from the accommodative programs put in place at the start of the pandemic and towards higher interest rates and other efforts to tame inflation.
Brainard’s prepared remarks stuck close to the monetary policy script used by Powell at his hearing on Tuesday, when he said the Fed will act as needed with higher interest rates and other measures to be sure inflation returns from its current high level to the 2% target.
U.S. consumer prices are rising at their fastest pace in almost four decades as high consumer demand for goods like used cars overwhelms supply limited by snarled supply chains and a pandemic-hit workforce.
The Fed decided last month to end its monthly bond purchases in March to clear the way for what most policymakers expected would be at least three quarter-percentage-point interest rate hikes this year.
But Brainard, as vice chair, would also gain more sway over cutting-edge issues like climate change and cryptocurrency regulation where the central bank’s approach is in flux.
Fed vice chairs are often called on to lead the development of new policies, and Brainard as a governor has staked out a broad agenda on those and other topics.
(Reporting by Howard Schneider and Ann Saphir; Editing by Paul Simao)