The Fed: Clinton Treasury secretary contender is key vote at crucial Fed meeting

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Bloomberg


Fed Governor Lael Brainard worked in the Clinton White House and then held senior post at the Obama Treasury Department before joining the U.S. central bank.

With a parade of hawkish Federal Reserve speeches putting the possibility of an interest-rate hike as early as September on the table, one central banker is getting particular attention because she may be in the White House next year.

Over the past few months, Fed Governor Lael Brainard has been touted as a possible Treasury secretary if Democratic presidential candidate Hillary Clinton wins the presidency in November, as polls currently suggest.

“Lael Brainard is on the short-list for top market and economic jobs inside the Clinton administration,” said Chris Krueger, of Cowen and Company’s equity and credit research division.

Brainard worked in the Clinton White House in the National Economic Council, eventually becoming the president’s sherpa to the Group of Eight industrial nations. President Barack Obama chose Brainard to head the international division at the Treasury Department and then tapped her to move to the U.S. central bank in 2014.

Since joining the Fed, Brainard has become the leading advocate of keeping interest rates low. She has urged the Fed to pay attention to the global economic and financial market conditions and possible feedbacks of a strong dollar into the U.S. economy.

Read: Fed’s Brainard calls for ‘waiting’ as labor market has slowed

So, if the Fed decides to go ahead with a rate hike at its two-day meeting ending Sept. 21, would she dissent? A dissent would be notable in any case, as formal objections by Fed governors are rare. The last one came in 2005.

And might a formal objection be seen as a vote of no confidence in Fed Chairwoman Janet Yellen by the Clinton camp?

A spokesman for the Fed declined to comment for the article. An email to the Clinton campaign went unanswered.

Diane Swonk, head of DS Economics, said Brainard “is in a bit of a Catch-22.”

“No matter what she does it will be viewed in a political spectrum,” Swonk said.

“She can’t take that into account. She has to make decisions on what she thinks is right,” Swonk said.

Brainard’s independence has already been questioned when federal election records revealed she donated $2,700 to the Clinton campaign.

“There will always people who will jump to that conclusion, but my sense is Brainard feels strongly about her views and they are not politically motivated,” said Kathy Bostjancic, an economist at Oxford Economics USA.

Tom Simons, an economist at Jefferies, said he thought that Brainard might dissent.

“Regardless of how strong the data prints, I think she will resist a rate hike. If it gets down to it, I think she would dissent at the September meeting if the rest of the Committee favored a hike,” Simons said in an email.

Bostjancic and Swonk said they doubted Brainard would dissent from a September rate hike.

“Nothing is evident [on the global front] that says you shouldn’t move,” Bostjancic said.

“There are concerns about China but the economy has not collapsed. China is managing its currency without wild fluctuations and the outcome of the Brexit vote seems not as dire as some forecast,” she added.

Swonk noted that Brainard did not dissent from the first rate hike last December.

“You dissent if you think it is the worst thing in the world,” Swonk said. The Fed is likely to move either in September or December so arguing about three months “would be splitting hairs,” she added.

Krueger said he didn’t think how Brainard voted at the September meeting would impact whether the Clinton camp tapped her for a top post.

“I’m not sure that would be a determining event,” he said.



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