C. Peter McColough Series on International Economics With Lael Brainard

Lael Brainard, White House National Economic Advisor, shares an updated assessment of the U.S. recovery.

The C. Peter McColough Series on International Economics brings the world’s foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by RealEcon: Reimagining American Economic Leadership, a CFR initiative of the Maurice R. Greenberg Center for Geoeconomic Studies.

GOODMAN: (Off mic)—from New York. For people watching online, we are in New York here. Good afternoon, everyone. Welcome to the Council on Foreign Relations. My name is Matthew Goodman. I direct an initiative at CFR that we call RealEcon, or Reimagining American Economic Leadership, which is, among other things, premised on the notion that American leadership in the world matters and that it is founded on a strong domestic U.S. economy, and a successful U.S. economy. 

Which is why I’m delighted to be cosponsoring this McColough Series event. This is part of the C. Peter McColough Series on International Economics, but it’s also cohosted by the RealEcon Initiative. And we’re delighted to be part of this as well. 

And I’m delighted to have Lael Brainard here, who I’ll introduce properly in a second. But just to say the run of show, after I step down Lael will come up and give her remarks. And then she’ll be joined on stage by Blair Effron, who is cofounder of Centerview Partners and vice chair of the Board of Directors of CFR, who I’m sure is familiar to this audience. 

So Lael Brainard is the fourteenth director of the National Economic Council and White House national economic advisor. Prior to this, as I think everyone knows, she served as vice chair of the Federal Reserve. She was undersecretary of the treasury for international affairs and had an earlier stint in the NEC, in fact, prior to this. And she’s also served at Brookings Institution and taught at MIT. She has her master’s and Ph.D. in economics from Harvard.  

So with that, I’m delighted to welcome Lael Brainard to the stage. Lael. (Applause.) 

BRAINARD: Well, it’s great to be here. And I want to thank Matt Goodman and Michael Froman for inviting me, who I both had the pleasure of working with on and off many times, and to Blair Effron for joining for this really great conversation on the U.S. economy.  

This conversation comes at a good time because today we are at a turning point. Inflation is now back down to pre-pandemic levels. And that means the focus needs to be on safeguarding the gains, the important gains, we’ve made in the labor market. A few years ago, as you’ll recall, many were convinced that this combination of a large decline in inflation along with continued solid expansion that we’re seeing today just couldn’t happen. They predicted inflation could only be brought back down at the cost of considerable dislocation in the labor market. And they believed a decline in inflation would require a major slowdown. In fact, inflation has come down back to its level just before the pandemic, while we’ve maintained the lowest average unemployment of any administration in over fifty years. And real GDP has grown by 2.9 percent per year on average.  

December 2020 was the last month that we saw any loss of jobs in the U.S. economy. The U.S. economy has been creating jobs for forty-three months in a row. In fact, while inflation came down exactly in line with the forecast that you would have seen two years ago, unemployment is much, much lower than all of those consensus forecasts out there. So the fact that inflation came down while employment continued to expand provides good evidence that the inflation surge was actually associated with several shocks associated with the pandemic and Russia’s invasion of Ukraine, rather than the alternative hypotheses, which a lot of people were focused on, which was a 1970s-type of wage price spiral.  

Moreover, the United States has seen a stronger recovery than comparable countries, while the inflation experience has been basically the same. The fact that comparable countries experienced the same inflation while we experience a much better growth and employment record suggests that government policies actually did matter. So I’m going to turn to each of those briefly, and then we’ll have a broader conversation.  

So I don’t need to remind you, there was a very important debate as the inflation surge really started over whether it was caused by excess demand or shocks that would dissipate over time. I focused, in 2022, on three sets of shocks. And I think those are the shocks that turned out to be very important. First, shipping bottlenecks and production stoppages constrained the supplies of key inputs, like semiconductors, and downstream consumer products, like autos, appliances and electronics. That inflation was exacerbated when Russia invaded Ukraine, which then sent commodity prices—energy, and food prices in particular—soaring.  

If you look at the sectoral level, you can see now that where those price increases happened, output was actually either lower or constrained. And that’s a sign that it was supply shortages rather than excess demand at the sectoral level that was leading to those inflation surges. And you can also see it at the aggregate level. If you look at the supply chains disruption index that the New York Fed publishes, and you look at CPI, and you superimpose them on each other, they basically follow exactly the same pattern.  

Secondly, that inflation was exacerbated by a shift in demand away from services to exactly those good sectors that were experiencing the greatest supply challenges. People during the pandemic went out to eat less, bought more kitchen appliances. They didn’t use public transport, they bought cars. They went out to gyms less and bought home exercise equipment. And prices rose rapidly for those goods where supply was struggling to catch up. And the price of services where demand was falling didn’t fall by enough, or didn’t fall, to compensate. And that’s why the overall inflation went up, as opposed to simply seeing relative price changes.  

And then later, of course, we saw that in reverse. People, as the economy opened back up, were able to switch back to services. But the services sector had contracted a lot and needed to expand, and so you saw the price increases there. And then the final thing was a huge shift in labor supply. Remember, there was a huge drop in labor supply during the lockdown period as workers went home and some retired earlier. And at that juncture, a lot of people wanted to talk about the great resignation because of the high quits rate. But from where we sit today, we can see it was actually a great rebound because we’ve seen historically high hires rates. And what we’ve seen is a wave of people switching to better jobs or starting new businesses. And we’ve seen a record nineteen million applications. That reallocation has led to improvements in incomes and balance sheets for those people making those choices, but it’s also been good for the economy. 

And that brings me to the role of government policy. So, obviously, people don’t start new businesses, they don’t switch jobs unless they feel pretty confident about the recovery. And that confidence came from a very strong policy response by the government. It helped to prevent the labor market scarring that we know hurts workers, but also holds the economy back in previous recoveries. It enabled small businesses to reopen and start up in record numbers, creating a positive loop with employment. It supported families and childcare to enable parents to get back to work. And now we have labor participation at record highs. It helped bolster household and small business balance sheets instead of saddling them with unmanageable debts, which would have made the recovery much more anemic.  

Secondly, the president made a clear commitment to respecting the independence of the Federal Reserve in fighting inflation. That was a sharp contrast from his predecessor, who had repeatedly criticized Federal Reserve monetary policy. Third, the administration mounted a comprehensive effort to address price pressures by fixing supply chains, addressing commodity price spikes, and taking on affordability challenges. If you look around today, gas prices at the pump are actually lower than they were before Putin invaded Ukraine. That’s in part because the administration used the Strategic Petroleum Reserve, which helps stabilize global energy markets, while also returning—while also earning a return for U.S. taxpayers. Domestic oil production is actually at record highs and we’ve made historic investments in the clean energy transition that will help diminish U.S. reliance on volatile global energy markets over time. 

We launched a Supply Chains Disruptions Task Force and worked with business and labor to fix supply chains and unclog ports, trucking networks, shipping lines, making sure packages arrived in time for the holidays. Remember those hundred ships docked outside of the Port of Los Angeles? They are gone. The president and vice president secured critical investment laws that are positioning America to be a global leader into the future on things like semiconductors and technologies such as AI. And those investments were paid for by improving tax fairness, tax collections, and also reducing spending on a bipartisan basis through the Fiscal Responsibility Act.  

And we also took the opportunity to address some longstanding affordability challenges, although in those areas there’s still a lot of work to do. In the inflation Reduction Act, they secured historic legislation to cap the cost of insulin and out-of-pocket drug costs and negotiate prices on key prescription drugs for seniors, while also actually lowering the deficit. They secured lower health insurance premiums. And now the insurance rate is the highest it’s ever been.  

But of course, we need to continue working on these challenges. America needs more housing. The housing shortage was exacerbated by the reallocation of demand during the pandemic, and we are now seeing a housing affordability crunch. We have to build more housing. And that’s why it’s important to move forward on an ambitious plan to build millions of new affordable homes and provide incentives to states and localities to remove obstacles to building in neighborhoods.  

And, finally, we have to enable more workers to enable to continue participating in the labor force and make it affordable to raise a family. And that’s why the child tax credit, which made such a huge difference on child poverty and support for childcare, are both really important. So it’s been a very tough four years for Americans. The pandemic and the associated challenges posed a lot of hardship. But where we are today, we know that, together, we’ve made a lot of progress. And now inflation is coming back down to normal levels, which enables us to focus on sustaining the strength that we have seen in the labor market. And, of course, it’s also important to keep working together to invest in the future and address affordability challenges to lift the middle class. So with that, turn to a conversation. Thank you very much. (Applause.) 

EFFRON: That was great. Thanks for being here. Thanks, everybody, for making time for us.  

So I want to play off a bit on your remarks, and really start off with the lesson learned idea. Clearly, I go back two years ago, there wasn’t an economist, really, that said it could be done without a hard landing. The idea of balancing inflation with the jobs. Several secretaries of the Treasury had the same perspective. What did we all miss in terms of the government policy? And, two, what was the role the private sector that might have been different today than in past downturns, past inflation periods? 

BRAINARD: Yeah. So I think what we certainly learned, if we didn’t know it at the time, is when you see, really, a once in a hundred year shocks, we should be very cautious about extrapolating from previous episodes. The 1970s-1980s wage price spiral was just a bad analogy for a host of reasons, including that inflation expectations are very strongly anchored today in a way that they weren’t. But it was also very clear that these shocks were very protracted, but they were, in fact, shocks. And they did, in fact, dissipate over time. And so I think if we had taken very seriously the notion that you simply couldn’t get inflation back down without massively suppressing growth and hiring, it would have cost American households, American businesses, enormous progress that we’ve actually seen. 

Instead, by focusing on shoring up balance sheets, making sure people could stay in their homes, get back to work, make sure that we rebuilt the childcare system, make sure that those supply chains got fixed. And in terms of the role of the private sector, hand in glove on all of these challenges, right? So we could not have gotten the ships moving through Los Angeles Port and moved goods to stores without a partnership between actually, business, labor, and government that proved to be very, very powerful. If you look at the investments we’re making, those investments are $900 billion worth of private capital being deployed to the clean energy transition and to semiconductors, and benefiting, in turn, from the infrastructure. The small business, 19 million applications, I mean, that is a sign of just how much dynamism we can unleash in our economy. So it’s really a partnership. 

EFFRON: You know, stay with that, if you would. U.S. companies, everything—it just seems like the decision making was much more nimble, information much more at your fingertips. How big a difference do you think that makes in the economy staying more smooth? 

BRAINARD: I think it is critically important. In fact, one of the things that I think we all learned is how little knowledge and standing kind of mechanisms for coordination between the public and the private sector there had been on supply chains. We just had huge blind spots on supply chains. So if you contrast what happened during the early days of the pandemic on the ports and the sort of ships not being able to unload because there weren’t trucks and trains that were moving—you compare that to what happened at the Port of Baltimore when that bridge collapsed. We already had supply chain task forces that included the private sector and the public sector and knew the kinds of information that needed to be exchanged to address those blockages.  

And so that ability to see the comprehensive picture was missing for each individual business. And, of course, it was missing for the government. And so creating—it’s an enormously powerful thing to do, is just visibility across those supply chains. You can be much more nimble in addressing them. 

EFFRON: OK, I’m going to ask you to do a little bit of a crystal ball. So today things feel pretty good, but not everything. Stock market, fifty year lows in unemployment, real wages outpacing, obviously, inflation. On the other side housing, you mentioned, problematic. Consumer confidence, cautious. If I look at six, twelve months, where do you think we are? 

BRAINARD: Yeah. Look, I think if the right choices are made, we can be in a really good place. And I say that, again, because we have a strong labor market. We have people in the labor market participating at historically high rates. Employment rates are historically high. And real wages are growing. They’ve grown faster than inflation, and people have more money to spend. That, in turn, is why we have resilient consumers. And resilient consumers have really powered this recovery. And those consumers continue to have capacity to do so, if the policy mix, I think, is done appropriately. Obviously, the market is now projecting forward in lowering rates on things like mortgages, projecting forward in lowering rates on things like car purchases, or small business credit. That’s also going to help to sustain this recovery.  

But I think it’s really important that we continue to work on housing as just a key area where we have such an affordability crunch. And we really do need the public sector to come together with the private sector on that. There’s a lot that we can do, and we are doing, in terms of making public land available for housing development, like we have announced in places like Nevada. We have some ability to provide incentives to states and localities to remove some of the obstacles, but we really need Congress. We need low-income housing tax credits. We need more funding. So we need to see bipartisan movement. And I’ll just say that, unfortunately, we just had Senate Republicans voting against a bill that had strong bipartisan support in the House that would have led to the construction of 200,000 more affordable homes. It would have been nice to have a down payment.  

EFFRON: We all agree. I’m sure members will talk more about the economy, so let me switch, if I could, to everyone’s favorite topic, the federal deficit, all right? Thirty-five trillion. Six hundred fifty million of interest expense. Every administration says they’re going to do something to bring it down. Given your perch in all aspects of government, what does it really take to get at it? And how concerned are you in the short term about something unintended? 

BRAINARD: Yeah. So I think the issue about addressing our fiscal risks is a medium-term challenge, but it is a very, very important challenge. The president has been able to make some progress through the Fiscal Responsibility Act. We had a trillion dollars reduction. The addition of the Inflation Reduction Act, which had mechanisms to actually pay for itself, I think that is kind of the model that we should be following more generally. And the important decisions that lie ahead is there will be a very important set of discussions around tax policy next year, because of the expiration of the 2017 tax cuts. And the question really has to arise, if we want to support a middle-class tax cut, which of course we all do, for people who earn less than 400,000, if we want to expand the child tax credit—so important, a proven piece of policy that really makes a difference—if we want to make sure that health insurance is affordable through the premium tax credits, then we need to have some revenues compensating elsewhere.  

And one way to do that, that I think the American people strongly support, is by having a fairer tax system. So making sure ultrawealthy pay more, contribute more, large corporations that have capacity contribute more. But if you look at revenues as a share of GDP, because of these tax cuts they’ve actually come down from the historic average of 18 percent by one and a half percentage points. And that’s not sustainable at a time where we have an aging population. We know that if we want to honor the commitments we’ve made to our seniors, which we have an absolute, unshakable commitment to do, then we actually do need to get back to where we were historically in terms of revenues. And that is going to be, I think, the key focus next year. One thing I will say is, extending all of those tax cuts would increase the deficit and debt by $5 trillion. That simply is not an option.  

EFFRON: Since we are the Council on Foreign Relations, let’s talk about China. Clearly, the two economic global powers for the world, we do better when both countries do better. If there’s one thing Congress agrees on, and that’s China going in different directions than our policies. What do you think has to happen? What do you support terms of our China relationship in the coming years?  

BRAINARD: Yeah. So I think this administration has worked very hard to put that bilateral relationship on a stable track. There are now good communications, including between the secretary of defense and his counterpart, very important, but also at State, at Treasury, at Commerce, and, of course, most importantly, leader to leader. That’s important because both countries have big effects on global challenges and our ability to solve problems together, like on climate change where we really need to collaborate. But we also need to compete with China. We need to recognize that our national security interests often diverge.  

And this administration has taken a very targeted approach, both to making sure in the economic realm that where there are national security risks that we very carefully manage those and address areas with export controls, with outward investment restrictions, areas where it could really affect our national security interests. And then the second thing that has been very important, and we learned this really to our detriment in the pandemic, is we need to diversify global supply chains.  

And in those areas that are going to be most important in the future, like on the clean energy transition, like on leading-edge semiconductors that are a vital part of the AI ecosystem, our national interests mean that we actually have to put in place some tough and targeted actions, just in those areas where China has really played by its own set of rules at a scale that has created some real damage. And areas like autos is one of those areas where this administration thought it was very important to put in place large enough tariff to make sure that we could sustain a competitive EV industry here in the U.S.  

EFFRON: Great. Staying international, sanctions. You had a role to play with Ukraine-Russia. How successful or not do you think our set of sanctions have been? And what’s the lesson going forward?  

BRAINARD: Yeah. So on sanctions, I think this administration started by asking Treasury to do a report—I think the first that’s been done in several decades—to try to take some lessons from the experience of sanctions so far, and to put in place some principles about how to move forward. And we have tried to adhere to those principles in the case of Russia-Ukraine. So first, most important one, which I think people in this room know very well, is sanctions are most effective when they are multilateral. And so it has been vitally important to us to rebuild alliances and to work with our allies to take sanctions actions together. And that is certainly what we have done in the case of Russia-Ukraine. And they are much more impactful.  

The second thing is to make them very targeted, so they will be very efficient. To figure out what matters, and to try to put the sanctions as narrowly as possible on those areas that are contributing most to war production, for instance, or to the ability of an economy to sustain those kinds of activities. So that, I think, has also been very important. I’d say the third thing that’s important is being dynamic. The private sector is very good at innovating and, you know, sort of finding alternative routes to things. So we need to continue to move our sanctions as trade changes, and as countries that are engaging in these activities find alternative mechanisms.  

EFFRON: Thanks. Let’s turn to artificial intelligence. Certain estimates say the impact to the economy could be $4 trillion over ten years. Talk to us a little bit, Lael, if you would, about where the impact really is felt and what’s behind that kind of optimism.  

BRAINARD: Yeah. So I think when we look out over the horizon, all of the potential areas of diffusion that hold a great deal of promise could really lead to breakthroughs in areas like health care, much better systems in financial services for detecting and avoiding fraud, and, of course, critically important in areas like national security. Now, diffusion, I think, is really at its most nascent stages. So it’s—really a lot of these changes lie ahead. But I think what we have—this administration has been very determined to do is to recognize that our private sector has put us in a position to lead in artificial intelligence. And we recognize that is really important, that we need to sustain leadership.  

It’s important, obviously, for our economic competitiveness. It’s really important for national security. But I think it’s also important from the perspective of safeguarding democracy. And so what we have been working on, in addition to putting together a framework to make sure that safety and security governance is well managed and involving the private sector in that, I think we’ve made huge progress there. We’ve also made a lot of progress in making sure that the various parts of the economy where AI could be most impactful are well positioned for that.  

But we want to make sure that leading frontier model ecosystems can continue to thrive here in the U.S. And to do that, we have to work hand in glove with the private sector to make sure that we have the infrastructure and, importantly, the clean energy, the transmission that’s going to be necessary for those data centers and for those frontier models. So we are working on that.  

EFFRON: So before I turn it over to our members, you talked just now and then during your remarks about the $900 billion public-private partnership. It’s really the first administration that has done this in broad scale. Talk to us a bit about the impacts. Obviously, CHIPS Act, Upstate New York, Ohio, Arizona. What are the lessons for any administration, Republican or Democrat, when it comes to that?  

BRAINARD: So I think what is interesting to see is that these policies together really are making a difference. If you look, there’s a great report by the Economic Innovation Group that regularly surveys what they call distressed counties. They just did their triennial survey—or, I don’t know, maybe an annual survey—where they looked at a thousand distressed counties. And they saw those counties have seen the highest growth in jobs and just overall growth in the last three and a half years than they had seen in the previous twenty years.  

And when we are on the ground in some of these communities, they are the sites of former factories that are now getting new investments on those sites because there are incentives in these laws that make it more attractive for the private sector to be in some of those places. Energy communities. A lot of these areas or places that previously hosted important energy investments and are going to be able to do that in the future, because they already, for instance, have transmission infrastructure in place. So I think what we’re learning is that it can make a real difference.  

And the other thing that I think we are learning is the U.S. government had really been out of this business for decades, right? That is why we lost leading-edge semiconductor fabrication to other countries, because we simply left the field and other countries invested. But it is interesting to note that if we were not making these investments right now in leading-edge fabrication, if we weren’t making these investments in clean energy, in the kind of fiber network for broadband, I don’t think we would actually be in a good position to maintain that lead in artificial intelligence. So it’s just very important for us to recognize sometimes we do actually need to help the private sector make those big capital investments in order to sustain these leading-edge clusters that generate good jobs and lift communities into the future. 

EFFRON: Great. So we’re going to turn it over to our members, both in the room and online. Remember, name and affiliation. And short on the questions. 

Q: Thank you very much. Thank you for your comments. Rebecca Patterson, Council for Economic Education. 

One thing that pulls a lot of what you said together today is manufacturing. Clearly, this administration is trying to support manufacturing. National Association of Manufacturing estimates over the next decade we’ll have 3.8 million manufacturing jobs, partly because of demographics, people retiring, but also things like the CHIPS Act and IRA. What do you think is the role for the federal government making sure we have enough workers? We’re going to need more immigrant workers to fill these jobs. We don’t have enough at home. And how do we train them? Half of these jobs will require four-year college degrees. Very different than past decades in the U.S. I’m just wondering how you’re processing that.  

BRAINARD: Yeah. So part of what we’ve been doing, alongside encouraging these investments and working with businesses on the actual investments, is working with businesses, and labor, and educators on making sure that we have workforces that are skilled and available to fill those manufacturing jobs. And as you say, it takes a few years to get there. Of course, a lot of these factories are being constructed right now, so the time is now to start making sure we have the skilled workforce.  

So what are we doing? I mean, we’re really going back as far as middle school, in some cases, and talking to kids about how exciting manufacturing is. And I think it is exciting right now, with robotics, and autonomy, and what’s going on with clean energy. But you really have to reach earlier into kids’ education to get them excited. We’re working with high schools to do degrees that are like pre-apprenticeship programs. And then, some of these jobs are actually best served by apprenticeship training, which are models where you learn and earn at the same time, where you’re working in conjunction with future employers.  

And they are just as, you know, skill intensive as a four-year college degree. Some of these apprenticeships take four to five years. So we’re supporting apprenticeships and, of course, we’re supporting community colleges, a vital pathway to these really good jobs, and supporting research partnerships that involve universities. So we’re taking an approach that really brings in all the necessary partners to get our workforce to a place where it’s ready to fill these jobs of the future.  

EFFRON: Great. And we have a question online.  

OPERATOR: We’ll take our next question from Tara Hariharan. 

Q: Thank you. My name is Tara Hariharan. And I’m from NWA Management.  

Dr. Brainard, could you address two factors that could complicate a benign forecast for U.S. inflation for 2025 and beyond? The first is, could limited prospects for U.S. fiscal consolidation on the near-term horizon pose upside risks to inflation? And, secondly, what about the risk that monetary policy easing, amid already very easy financial conditions, could stoke inflation again? Thank you. 

EFFRON: Let’s just keep it on inflation generally, because I know there’s a lot in that question. 

BRAINARD: Yeah. Yeah, so, look, I, like all of you, look carefully at the trends in what’s been going on in inflation. And one of the interesting things is, if you take out housing, we’re actually down to about 1.8 percent inflation on CPI. Housing has been really the kind of stickiest piece of that. And it’s a complicated part of the inflation puzzle, because we actually need more homes ultimately to get to greater affordability. And that will be more possible in an environment that is more supportive in terms of the market interest rates. Obviously, we need to keep our eyes on inflationary risks, but I think what we’re seeing with the very strong reduction in inflation, that’s not just in the U.S. but globally, that right now we need to be and have the ability to support growth, to support the labor market. And certainly, you know, for the administration, that’s where our focus is.  

There could be shocks, of course, in the real economy. But, as we were speaking earlier, we have better mechanisms now than we did previously to address supply chain snarls and breakdowns. There’s more resiliency. And I think a lot of businesses have moved away from just-in-time to more of a just-in-case philosophy and are now sourcing from more diverse places.  

EFFRON: Great. Thanks. A lot of hands. Fred. 

Q: Fred Hochberg, former colleague. 

Lael, a lot of—inflation’s down, but a lot of people, voters, talk about eggs still cost more than they did three, four years ago. And even though they’re making more money, they still look at the price of groceries. So it’s largely a communications issue. And it’s not clear how we let people realize, well, actually you’re making more money, and, yes, it’s costing more, but so therefore then people feel like, well, I haven’t really gained. So how do we overcome that?  

BRAINARD: Look, I think— 

Q: Particularly among seniors who are, like, on Social Security, where that has not gone up?  

BRAINARD: Yeah. I think that is really a huge focus. It’s really important to understand where middle class households are, what their budgets look like, what they’re wrestling with in terms of paying their bills. And I think the more that we spend time talking to people, talking to small businesses, I think those challenges are really very important. And we need to help solve those challenges. So some of the areas where some of these affordability challenges are actually quite long standing are in areas like health care. We know that. Small businesses, if they want to hire additional employees, if they want to start up, they need to have better answers on health insurance. And that’s what we’re doing with some of our tax credits, with premium tax credits, for instance. 

They need to be able to offer better solutions on childcare. And that’s why it’s so important to invest in making childcare more affordable. Housing, you know, I guess we can’t talk enough about it because that is an area where, if we can address affordability of housing, that will give people a lot more breathing room. So I think what we are very focused on is solving the kind of cost of living squeeze that Americans are feeling. And we’ve made some progress. You know, if you look at prescription drugs, $35 a month insulin, that’s, like, a huge breakthrough for so many people—hundreds of dollars a month, capping out of pocket costs. The question is, can we make some of those things available for more people? Because that will make a material difference.  

EFFRON: Great. Before I go to online, let’s go back in the room. Yes. Jim, we’ll get to you—OK, Jim, and then right in the middle.  

Q: Thank you very much. It’s really an interesting presentation. 

I wondered if you could talk a little more about tariffs. Biden has—Trump in the debate said that Biden had left many of his tariffs in place. And we read that you’re going to increase tariffs on China dramatically. And economists say that tariffs are inflationary. If they are inflationary, why do we have them, and why are we increasing them?  

BRAINARD: Yeah. So good question. I think that one of the biggest contrasts, actually, in vision, is how tariffs can be useful as targeted tools versus broad tariffs against every country, whether or not they’re playing by the rules—(laughs)—which is really where, you know, the previous administration is. Really, that kind of amounts to a national sales tax on middle class families. So if you look at these proposals that are out there that congressional Republicans are talking about, what you see there are broad high tariffs against all countries. And the estimates are that that is like a national sales tax on middle class families of about $4,000 a year.  

What this administration has done is increased tariffs on China in only about five areas, five categories of goods. And they are all directed at areas where China is spending a huge amount of money subsidizing their companies, and has done a lot of intellectual property theft, and dominates global supply chains. So if you look at the solar supply chain, 70 to 90 percent of each stage of that supply chain is dominated by China. How do we diversify? Similarly, if you look around the world, Chinese EVs are flooding markets with low price models that are really based on a lot of unfair practices in China.  

So what this administration has done is just choose a few areas where we’re investing and where we know if we don’t put in place those actions to counter China’s unfair trade practices, it simply won’t be possible for a private company to be profitable. And it will work against our determination to have clean energy manufacturing here in the U.S., semiconductor manufacturing. So it’s really in those areas—EVs, batteries, semiconductors, and steel. Those are the only areas where we’ve increased tariffs.  

EFFRON: Great. Thank you. Why don’t we go online? 

OPERATOR: We’ll take our next question from Mike Froman. 

EFFRON: Who’s Mike Froman? (Laughter.) All right, Mike, you’re up.  

Q: My name is Mike Froman. I work at the Council on Foreign Relations. (Laughter.) And first of all, Lael, let me thank you for coming. And I wish I could be there in person today.  

You’ve laid out quite—as you just laid out, a targeted approach to a number of these interventions of the government into what previously had been an international economic strategy that was really based on efficiency, efficient supply chains, and the like. Now we understand efficiency is not the only goal. Resilience, redundancy, national security are also important. Future administrations though may not be as targeted as the Biden administration has been. How do you think about what parameters or guardrails should be put around the use of export controls, foreign investment restrictions, industrial policy, protectionism, to make sure we’re not just opening up a Pandora’s box that ultimately lowers the standards of living precisely for the people that we’re trying to raise them for? 

BRAINARD: Well, Mike, it’s nice to hear from you. And thank you for inviting me to be here.  

Yes, those are exactly the kinds of questions that we think future administrations should wrestle with, just as we have wrestled with them. And to the extent that these tax credits and investments, these government kind of seed investments, are discussed and debated in a congressional legislation, we think it’s very important to put very clear goals for what those investments are intended to do, and what market failure, what social goal that isn’t being adequately addressed by the market because investors don’t get enough return to reflect that broader social goal, those are the areas that we really want to focus on.  

And so if you think about, for instance, clean energy. Obviously, we have a lot of investors that are very interested in making, but these are capital intensive investments. And you kind of need coordination among the various actors. Like, you’re not going to invest in solar wafers unless you’re sure there’s a solar cell manufacturer that’s going to purchase those wafers. You’re not going to invest in EV batteries unless you’re sure there’s going to be demand for EVs and manufacturers are going to be here making those EVs. And so what these investment tax credits and laws help to do is they help to change the return to business investors by helping to coordinate around a few goals that the private sector alone wouldn’t, you know, be able to coordinate on. 

National security is obviously an important one, but so too is critical semiconductor technologies, making sure that we have that fab capacity here so it’s not overly concentrated in one part of the world. And of course, clean energy, for a long time, people have been looking for a mechanism to give private investors enough of a return to make this worthwhile. Those are the kinds of strictures I think it’s going to be incredibly important to make sure that future administrations observe as well.  

EFFRON: Thanks. Thanks, Mike. Center table. Sorry, there’s a microphone. I’m sorry. Thank you. 

Q: My name is Gerald Pollack.  

In the campaign, the question of price gouging has come up in connection with the discussion on inflation. Now that raises the question of the competitiveness of the United States economy. Are we adequately competitive? Is there a greater role for antitrust policy as we pursue the goal of price stability? 

BRAINARD: Yeah. So what we, I think, have seen is a tremendous—just looking at the data, there has been a tremendous move towards consolidation overall, over several decades now in the U.S. economy. And of course, when we talk to small businesses, we hear a lot that they have a very difficult time in some areas really competing fairly, or even entering a market where you have a few dominant players. So, yes, I think there’s an important role for competition policy. This administration is seeing a much more active approach to competition policy. And we do believe that is important for lowering prices as well, because when you have greater competition, of course, it makes it more difficult to keep prices high when your costs come down.  

If you look across the economy, what’s really interesting right now is the corporate profit share is at a historical high. So that’s kind of interesting. It suggests that competition policy does have a good role to play here. But of course, it’s going to be very specific to different industries in terms of exactly, you know, what that means in terms of the kinds of measures that are being taken. We have been very active in areas like junk fees, for instance. So in some areas where the whole industry is putting these kind of additional fees on live events or family seating fees, we have actually come in and developed some guidance that has helped the private sector coordinate around getting rid of some of those fees. And I think that’s been good for consumers.  

EFFRON: Thanks. Right in the back—yeah, one table. Thank you. 

Q: Thank you very much. Valerie Grant with Nuveen, LLC. 

I want to double down on this issue of anti-competitive behavior and its impact on the economy, because the technology sector is so vital, and is really, I think, the envy of the world. But yet, we see that there’s been very aggressive action taken against the technology sector, even attempts to perhaps even break up companies who’ve invested billions of dollars over time. How do you—how do you reconcile that, given the need to lead an AI, as you state, but the sort of very draconian measures that are being proposed in some areas on the tech sector? Thank you.  

BRAINARD: Yeah. So I—of course, I—you know, I can’t speak to specific enforcement matters, and I don’t get engaged on them. But this question about what’s appropriate in sectors where there might be massive network externalities, which are some of the tech platforms, it’s a genuinely complicated question. On the one hand, the scale of the data and the compute power is, you know, is quite daunting. And so there are certain private sector entities that have achieved that and have that capacity.  

On the other hand, you have to also make sure that we have a marketplace where new entrants with new ideas can actually get in and start to build share, and aren’t locked out because those data and network externality advantages are so daunting. So it’s a very—it’s a very complicated balancing act. And I think what’s important is to have competition authorities actively engaged on that. And exactly where they draw the line and how they think about that, obviously, you know, is going to be very case specific and, again, not appropriate for us to engage on. But I think that risk management exercise is very, very important, particularly right now.  

EFFRON: Let’s take a question here, then we’ll go online. 

Q: Robert Fallon, Promontory Therapeutics. 

I’d like to ask about Nippon Steel’s proposed acquisition of U.S. Steel. As I understand it, right, Nippon Steel has committed to move their headquarters to Pittsburgh, to invest $2.4 billion in new blast furnace technology. Nippon Steel is probably the most well-known steel manufacturer of carbon steel in the world. So I see that as an opportunity for tech transfer inward. And certainly economically, this has got to be a benefit for U.S. Steel. So I’m having a hard time understanding why there seems to be sentiment in the administration that this could amount to some kind of a national security concern. Perhaps you could comment on that?  

BRAINARD: Yeah. So, regrettably, I cannot comment on it. (Laughter.) 

EFFRON: Great answer. OK, next. In the room still, then we’ll go online. Yes, over here. (Laughter.) 

Q: Thank you. 

So, you know, I think you mentioned earlier that the economy generally has outperformed most expectations. You know, one banana peel that might still be out there is commercial real estate. Interested in your thoughts in that sector. And maybe to just, you know, bring it a little bit close to home for you, I lived in D.C. about ten years ago. When I travel there now, it’s just not as vibrant as it used to be. Perhaps because, you know, federal employees are not in office. So how do you think about commercial real estate risk? And then also, how just the return to office rates impact kind of other follow-on things, like small businesses, et cetera. 

BRAINARD: All right. Well, let me just state for the record, my team is 100 percent in the office at all times. (Laughter, applause.) However, this issue of commercial real estate and downtown office vacancy rates, particularly in certain types of properties, is something that, of course, we have been very focused on, as I know a lot of people have. We focus on it in part because we care a lot about vulnerabilities in the financial system. So we have kept a close eye on it. It does seem to be a very targeted problem, a difficult, difficult problem. But commercial real estate, writ large, there are areas that are doing quite well. 

With this area—with this issue of office, particularly Class B properties, you know, there are a variety of ways that these are being managed now. And, you know, we’d love to see, of course, more commercial to residential conversions in some of these areas, because of the housing crunch. But we know that, you know, we can provide some incentives, and we are on the margins, but obviously that’s not going to work everywhere because of the costs associated with it. So hopefully as, you know, we see the broader environment become more benign going forward, there’ll be more ability to manage some of those properties and transactions, and to make some progress there. That is my hope in, you know, perhaps the next year time frame. 

EFFRON: Great. Let’s go online. 

OPERATOR: We’ll take our next question from Paula DiPerna. 

Q: How do you do? Thank you. Good to see you again. Paula DiPerna, Carbon Disclosure Project. Thanks for everything.  

Just wondering, what is holding back the administration’s promotion of the IRA and the flow of information about the flow of funds from the infrastructure bill in the IRA to local communities? I live in Upstate New York. There’s not a single local official who has any idea how to access that money. And we don’t see any evidence of the work being supported. Households still can’t get internet. You know, hundreds of people who work self-employed in Upstate New York are told they cannot have internet because it’s prevented by state regulations. So what is holding the administration back, I guess, from breaking through these obstacles? Thank you again.  

BRAINARD: Yeah. So good question. So I think, on—I think you’re referring to the affordable BEAD build out internet. That is a program that works through the states, and the money has to be dispersed to states. And states actually have a process that they go through to determine where those investments are going to be made. So what has taken a bit longer on that program is the fact that the federal government is working through the states, and each state has their own process of getting public comment, working through providers. So wherever we’re working through states, it adds perhaps a little bit more time. But the thought, I think, in Congress is that the outcomes will be more tailored to local conditions. But that does take time.  

Now, there are millions of households that have benefited from the ACP program, which is actually getting lower cost high-speed internet. And so, you know, those households have seen internet that’s as low as $35 or even $0 a month. But it is true that the BEAD program has taken longer to build out the infrastructure, because of that intermediate step. In other parts of Upstate New York, I’ve certainly been to places like Albany and Syracuse, where we’re seeing some great new investments from places like Micron and Global Foundries, where they’re working with local high schools and middle schools to get more people into some of these great jobs.  

So I think it depends a lot where you are. You know, if you look at some of the energy communities in West Virginia, you’re seeing new battery companies, new types of clean energy companies, that are siting on old coal plants, taking advantage of some of the existing infrastructure and skilled workforces. But you’re certainly right that we need to just work even faster getting some of this, you know, word out, certainly, and enabling private sector investments. 

EFFRON: Great. So I think we have time for two more questions. Very back and then over here. 

Q: Thank you. Earl Carr, representing CJPA Global Advisors. Thank you for a very exciting, exceptional conversation. 

Debt forgiveness, particularly with colleges, has been a cornerstone of the administration. How do you articulate the advantages of debt forgiveness, and compare that with the moral hazard argument that you’re enabling families and people to just keep on lending? And help us understand the economic value and argument in that. Thank you.  

BRAINARD: Yeah. So I think some of the best ways to see the benefits is to just go online. You have people, you know, posting TikToks and on Instagram. They get a letter—you know, a pastor, or a firefighter, or a teacher—and literally, you know, they’re crying because now they can finally, you know, have the down payment on the house. They can finally go ahead and have a child and, you know, feel really confident about their financial wherewithal to do that. They might be able to invest in a small business.  

I think those testimonials for the public sector loan forgiveness program, you know, we’ve seen about five million Americans getting very substantial debt relief so far. And the testimonials on how that is making it more possible for them to, you know, get on a pathway to the middle class. They don’t want to sacrifice their service-oriented careers. You know, they still want to serve the public as a teacher or a firefighter. But they also want to provide just a little financial security. And that’s what some of that loan forgiveness is enabling them to do.  

EFFRON: Just want to see here. Short question. Where are we headed?  

Q: Can you hear me? Hi. Hey, Lael. Great to see you. Thank you so much, both on behalf of everyone here—I personally learn so much every time I listen to you. And this is a really great conversation. 

EFFRON: Can you just identify yourself, if you would? 

Q: Ian Samuels, founder of New System Ventures, which is a climate and decarbonization-focused venture fund. 

The Biden-Harris administration is unquestionably a leader, probably the best administration in history, addressing the energy transition that we face. But what do you see as working particularly well? And where do we need to redouble our efforts to win the—accelerate the transition, and win the 21st century in these important industries?  

BRAINARD: Yeah. So I think where we have been successful is really in giving investors and entrepreneurs and businesses, you know, the sort of greater certainty about these investments will pay off, and clarity about exactly what the tax benefits are. If you look at things like direct pay, the way that the tax credits work is you can monetize them. And that is tremendously beneficial to engaging a broader set of actors that might not have had the tax liabilities that would have made it worthwhile, but also local governments and nonprofits can get engaged because of direct pay. So I think there’s some real innovations there that are meaningful.  

Where are the challenges? It is hard to permit—to get permits to make some of these investments. It’s very hard for, you know, mines that might be valuable in terms of creating greater resilience on critical minerals. It’s very hard when it comes to cross-state transmission build out. So there are some areas where, at the—at the White House and in the administration we’ve done a lot using executive authority to, like, put a single agency in charge, to put shorter timelines. We got a little bit of legislative help in the Fiscal Responsibility Act doing that. But the truth is, it would be good to see additional advancements through legislation on permitting.  

EFFRON: Thanks everybody. Lael, most importantly, thanks to you.  

BRAINARD: Thank you. 

EFFRON: Just great conversation.  

BRAINARD: Thank you. (Applause.) 

(END) 

This is an uncorrected transcript.