Now It’s Obama’s Chance to Reshape the Fed
Policy + Politics

Now It’s Obama’s Chance to Reshape the Fed

REUTERS/Joshua Roberts

Conservatives in Congress assert that President Obama is preparing to pack the DC Court of Appeals by filling three vacancies on the 11-judge panel. But another panel in Washington – the seven-member Board of Governors of the Federal Reserve – is facing as many as five vacancies in the next few months, giving the president the opportunity to put his stamp on the central bank for the next decade or more.

The recent decision by Senate Democrats to invoke the so-called nuclear option, which deprives Republicans of the ability to filibuster most nominees, has given him an unprecedented free hand if he chooses to exercise it.

Related: Reid Pulls the Trigger on Nuclear Option

The seven-member Fed Board currently has one vacant seat, and as many as four more may be open within the next few months. Current Chairman Ben Bernanke will retire at the end of June, which opens up one seat; Sarah Bloom Raskin has been appointed to a position at the Treasury Department and is expected to leave the central bank when she is confirmed; Jerome Powell’s term expires at the end of January. Finally, Jeremy C. Stein, with four years remaining in his term, may be tempted to return to his teaching post at Harvard University next year when his leave expires.

Absent an effort by Senate Republicans to convince the country that the Fed Board is overworked and doesn’t need all its vacancies filled – as they’ve been trying to do with the appeals court – it appears that Obama will have between three and five seats to fill, and that the elimination of the filibuster will give him the opportunity to choose nominees who might not otherwise have made it through the Senate.

Republicans in the Senate, notably, filibustered the nomination of Nobel Prize winning economist Peter Diamond in 2011, and likewise blocked the appointment of a current sitting governor until he was nominated in tandem with a Republican.

“It has the potential for significantly impacting the pool of people who would be considered,” said former Fed Governor Mark W. Olson. “There will be a lot less vetting and a lot less of the horse-trading you normally see in the Senate.”

Olson, who was appointed to the Fed by George W. Bush in 2001, resigned in order to head the Public Company Accounting Oversight Board in 2006. He is now co-chairman of Treliant Risk Advisors in Washington, DC.

“His most significant appointment was certainly Janet Yellen and she emerged as a consensus pick,” Olson said, referring to the current Fed Co-Chair, whom Obama appointed to succeed Bernanke.

Related: What You Need to Know about Janet Yellen

However, whether Obama would have chosen Yellen under current circumstances is in question. The president initially favored former Treasury Secretary Larry Summers for the job, but couldn’t be sure of enough Democratic support. That bar is significantly lower in the wake of the nuclear option.

However, Olson and other say that there is reason to believe that the president won’t be completely partisan in his appointments. Governor Powell, a Republican who was nominated in tandem with Governor Stein in order to pacify Senate Republicans, will see his term expire in January.

“Jay Powel was a strong candidate and my own sense is that there is a very strong likelihood that he will be reappointed,” said Olson.

Interestingly, considering the importance of the Fed to the country’s economic recovery, there is little in the way of speculation about who will fill the slots of the governors known to be leaving. Lael Brainard, who recently resigned her position as the Treasury Department's undersecretary for international affairs, is the most frequently mentioned candidate.

But beyond Brainard, there are few names floating around DC policy circles, and little clear indication of the direction in which the administration will move.

Some aren’t concerned, feeling that the biggest decision – elevating Yellen to the chair – overshadows an action with regard to replacing members of the board.

“Does it really matter?” asked Gil Schwartz, a former Fed attorney and now a principal with the law firm Schwartz & Ballen. “The governors are important, but on the monetary policy side, it’s the chair who dominates and determines what the policy will be.”  -  Follow Rob Garver on Twitter @rrgarver

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