Finally, Fed may get a full board

I don’t recall which paper, but some economist pointed how Fed’s board has not been fully occupied for a while. Fed Board has seven governors (including chairman and vice chairman) but we have had only 5-6 governors for a while. Even now, there are just five members. At this stage Fed needs more hands and not less.

Now Obama has nominated 3 board members and has sent the list to Senate for confirmation. WSJ Blog has better explanation:

The White House tonight identified the slots at the Federal Reserve Board that its three latest nominees would fill (if approved by the Senate). Each of the seven Fed governors has a 14-year term. When governors leave before their terms expire, their replacements assume the unexpired period.  Fed chairmen and vice chairmen serve separate four-year terms alongside their governor appointments.

  • Federal Reserve Bank of San Francisco President Janet Yellen, 63, was nominated to a term that expires in 2024. She takes a slot previously held by Mark Olson, who left the Fed in June 2006 to head the Public Company Accounting Oversight Board.  (Ms. Yellen also was nominated as vice chairman of the Fed, which carries a separate four-year term.)
  • Sarah Bloom Raskin, 49, Maryland’s Commissioner of Financial Regulation, was nominated for the governor slot currently held by Fed Vice Chairman Donald Kohn, which ends in 2016.
  • Peter Diamond, 70, an economics professor at the Massachusetts Institute of Technology, would take a term ends in 2014.  The slot was previously held by Frederic Mishkin, who left the Fed in 2008 to return to his post at Columbia Business School.

Yellen nomination is on expected lines. Yellen responds to her nomination. Don’t know anything about Sarah Raskin but clearly her expertise on financial regulation ahs been sought. Peter Diamond is an interesting choice as he is a pension and social security expert.

WSJ Blog also has an interview of Allan Meltzer, on this event. Meltzer is a renowned Fed Historian . As always, history points to some interesting lessons:

With the latest nominations, President Obama will have named four governors to the Fed in a short period. Will that help Obama?

Meltzer: It will help Obama when he might need it. He’ll have a board that will be sympathetic to his views. Not necessarily because they’re politically motivated, but because they believe that it’s more important to do something about unemployment. That’s why the Burns board [Arthur Burns served as Fed chairman from 1970 to 1978] voted for the high money growth under price controls, because they were more concerned about unemployment than inflation. Unemployment first, then we’ll take care of the inflation later… I expect that the board will eventually appear to be a much more dovish place than it was some time ago. The issue will be, we have high unemployment. How can we raise interest rates? They’ll have the support of the business community, the labor unions, the Congress, the administration and the public.

Has any other president had the opportunity to name three people to the Federal Reserve board at once?

Meltzer: I don’t think so. Reagan essentially appointed the whole board during his administration, with the exception of [Paul] Volcker and then he replaced Volcker with [Alan] Greenspan. The board that Arthur Burns took over, all the members were appointed by Presidents Kennedy and Johnson. One of the things that gets overlooked is that Arthur Burns gets blamed for helping Nixon win the election, but he had a board made up of all Kennedy-Johnson people who certainly didn’t share a great love for Richard Nixon. But they voted with him. There was no opposition. They didn’t do it for Nixon. They did it because of unemployment.

Janet Yellen is perceived to be a dovish Fed policymaker. What will she have to do to ensure that she has anti-inflation credibility?

Meltzer: She’ll probably make some statement about inflation being important. But words and actions don’t necessarily go together. We always have the problem that when people say these things, they’re making unconditional statements — you know, ‘Inflation is important and we have to be concerned about that, although this is not the time to worry about it.’ … I’m sure she’ll make a statement to the Republicans in Congress who will surely ask her, when she comes for confirmation, about her views about inflation. She’ll say something which will be reassuring. But I don’t think it’ll mean very much because it won’t be in the specifics of the time and the place when that vote [on the Fed] is going to become important.

A Fed vice chair has never become chairman. Could Yellen be the first to take that path?

Meltzer: There’s no rule that says that won’t happen. Until the 1970s there weren’t very many economists on the board. Martin [William McChesney Martin Jr., Fed chairman from 1951 to 1970] didn’t like economists on his board and he didn’t think much that economists had much to contribute to the work on monetary policy. The vice chairmen in the past were never terribly distinguished people for monetary policy. If you look at central banks around the world now, they are usually run by capable economists. That’s very different than in the past.

So it’s not out of the question. She is a capable economist. Of course, this is Washington. There’s nothing that isn’t political.

Great stuff from Meltzer. Politics, history and economics all at one place.

3 Responses to “Finally, Fed may get a full board”

  1. unicon india Says:

    Federal Reserve Bank of San Francisco President Janet Yellen, 63, was nominated to a term that expires in 2024. She takes a slot previously held by Mark Olson, who left the Fed in June 2006 to head the Public Company Accounting Oversight Board. (Ms. Yellen also was nominated as vice chairman of the Fed, which carries a separate four-year term.)

  2. select your broker Says:

    Maryland’s Commissioner of Financial Regulation, was nominated for the governor slot currently held by Fed Vice Chairman Donald Kohn, which ends in 2016.

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