What Brainard's departure means for the Fed, bank policy and her career

Brainard's departure will create openings on several of the board's committees. While some argue that the designation of committee members is merely an organizing tool for the Fed, as all final policy decisions go before the full board for a vote, others see the chair positions as being desirable and influential.

Karen Petrou, managing partner at Federal Financial Analytics, said this is especially true of the committee on economic and monetary affairs, as well the committee on payments, clearing and settlement. Brainard was the head of both.

With Waller sitting on the monetary affairs committee and Gov. Michelle Bowman sitting on payments, Petrou said the new chair appointments could influence how the Fed looks at key issues. Both Waller and Bowman were appointed by President Donald Trump.

"In terms of seniority, the desirable committees of payments and settlements and monetary affairs could be led by two Republican governors, Waller and Bowman," Petrou said. "They don't always agree with Brainard, but the Fed is very institutional."

Derek Tang, co-founder of the Washington-based research firm Monetary Policy Analytics, said whoever helms the monetary affairs committee also oversees international finance — the Fed's "diplomacy arm," which serves as a liaison with central banks around the world — as well as research and statistics. 

"This is a pretty crucial time in terms of figuring out where the economy is going," Tang said. "So, that's going to be interesting to see if there's a change in the research agenda and what they want to investigate."

Brainard also chairs the committee on financial stability. That position will likely be filled by Barr, given he is already a member of the committee and the obligations of the role tie in closely with his regulation and supervision mandate, multiple Fed watchers say.

The final chair seat that will be left open upon Brainard's departure is for the committee on board affairs. Petrou said the administrative responsibilities that come with that role make it a "pain in the neck," but noted that it is often used to give newer board members a chance to cut their teeth.

"They use it to teach the junior governors the ropes," she said. "You have two new governors, Philip Jefferson and Lisa Cook, who have no administrative experience — they're academics. So it's possible one of them might get the short end of that stick."

Kaleb Nygaard, a research fellow at the University of Pennsylvania who specializes in Fed history, said Brainard's departure could create an opportunity for Powell to reshape the board and its leadership on certain issues for years to come, possibly exceeding his current term, which ends in May 2026.

"I suspect that the board and Powell may decide to shake up even more than just the committees that Brainard was involved with," Nygaard said. "Given Brainard's significant internal leadership role on so many initiatives, I suspect this will be an opportunity for the Fed to reassess even the ones she wasn't on and there will be a general reshuffle of those committee assignments and big projects."

Two projects that Brainard has been spearheading for years are on the verge of reaching completion: a substantial update to the Community Reinvestment Act and the introduction of a Fed-run real-time payment network known as FedNow.

The Fed, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency introduced a draft framework for overhauling the CRA last May and are currently wading through various comments received over the summer.

Brainard has been a proponent of updating the 1977 law — which has not been substantially changed since 1995 — for years. In 2020, she raised concerns about the overhaul initiative being led by the FDIC and OCC, but those worries seem to have dissipated with the current proposal.

In a July webinar, Brainard described the effort as a "once-in-a-generation opportunity to strengthen the CRA to bring greater credit, investment and banking services to the communities that have faced the greatest challenges."

Kathryn Judge, a Columbia University law professor who specializes in bank regulation, said Brainard has been "absolutely critical" in crafting the CRA framework currently under consideration, but she expects whoever takes on the issue next — likely Barr, in her estimation — will champion the effort well in her place.

"Given Barr's expertise and portfolio, he's incredibly well positioned to really step in and take over the torch on issues like that," Judge said.

FedNow is another long-delayed project that seems to be nearing the finish line. After a decade of consideration and nearly four years of dedicated work, the real-time payment network is scheduled to go live sometime this summer. 

Brainard, as the chair of the Fed's payment's committee, was set to oversee the initial rollout and gradual expansion of FedNow, which promises to be a lengthy process as banks lay the groundwork for connecting to the system.

Aaron Klein, senior fellow for economic studies at the Brookings Institution, said that, unlike with Barr and the CRA reform effort, there is not an heir apparent for payment matters.

"On payments it is less clear, and it will be interesting to see who chairs that committee," Klein said. "In my experience, few folk come to the Fed seeking to go deep into payments. That's one reason why the Fed failed to modernize their payment system for decades."

In recent years, Brainard has become the closest thing the board has seen to a proponent of implementing a central bank digital currency, or digital dollar. 

While she has stopped short of endorsing the creation of a CBDC, she has made efforts to acknowledge the benefits one might bring the U.S. in terms of global competitiveness and financial stability, going so far as to call it a "natural evolution" of the payment system

Brainard's neutrality on the idea of a digital dollar, stands in stark contrast to other board members, such as Bowman and Waller, who have been "highly skeptical" of the concept.

Petrou said a CBDC is unlikely to move forward without authorization from Congress, but how the Fed thinks and talks about the topic is among the top open questions raised by Brainard's departure, at least as far as payments are concerned.

"The two key policy issues are CBDC and interoperability, and those are still significant, outstanding questions," she said.

Tang said if Bowman or Waller were to take a leading role in the payments space, it would likely mean a significant change in tone for conversations around a digital dollar. 

"They would really be saying, 'Let's slow down, let's take a step back and think about why do we need a CBDC, is this a solution looking for a problem?'" Tang said. "They're really not convinced at all that this is something that's needed. You've heard that from them quite consistently."

Ultimately, Wessel said, the divergent opinions of Brainard and other board members are largely academic, as Congress does not appear poised to issue authorizing legislation on the matter anytime soon.

"She may be more interested in a Fed digital currency than some of the other governors, but that isn't moving very fast anyhow," he said.