President Barack Obama recommends Harvard economist Jeremy Stein, an investment banker, and Jerome Powell, former Treasury official, to the two vacant positions on the Federal Reserve’s policy-setting board of governors.
The White House’s candidates, who have Democratic and Republican credentials respectively, may help speed their nomination through Congress among the slow economic recovery that has failed to put a major blow in the 8.6 percent unemployment rate.
While neither has established detailed views on temporary policy, Stein wrote a paper earlier this year suggesting he would support the Fed’s individual efforts to keep down long-term borrowing costs, which have been controversial in Washington. The Fed for over three years has adopted an array of radical measures to keep interest rates low and stimulate recovery.
Stein, who formerly worked for the Obama administration as an adviser to the Treasury secretary and a National Economic Council staff, specializes in stock price behavior, corporate investment and financing decisions, risk management and capital allocation inside firms.
The choice of Powell, who served at the Treasury during President George H. W. Bush’s term in the late 1980s and early 1990s, could be aimed at pacify Senate Republicans. They blocked Peter Diamond, a Massachusetts Institute of Technology economist, saying the Nobel prize winner was unqualified for the job and was too compassionate to government intervention in the economy.
Powell is a lawyer by training and worked at Dillon, Read and Bankers Trust Co. after leaving the Bush administration and before joining Carlyle Group. His knowledge of financial markets could help him fill the gap left by Kevin Warsh, a former Morgan Stanley executive who acted as Chairman Ben Bernanke’s point-man for crisis negotiations.
FULL BOARD
However, Powell’s financial industry experiences may also be a source of criticism from analysts who already see the U.S. central bank as being too coomfortable with Wall Street.
Powell is presently a visiting scholar at the Bipartisan Policy Center in Washington, focused on federal and state fiscal issues. Both Stein and Powell had already been flagged in various press reports as likely nominees.
In response to a deep recession and financial crisis, the Fed swept interest rates to near zero and strongly expanded its balance sheet to $2.8 trillion to keep the economy floating. Some analysts worry the Fed’s asset purchases could make it harder for the central bank to tighten monetary policy when it decides the time is right.
If Powell and Stein are settled, it would be the first time since April 2006 that all seven seats on the Fed’s board are filled. The term currently filled by Elizabeth Duke, the last remaining George W. Bush appointee on the board, is to expire at the end of January, though governors can choose to stay in office until a successor is confirmed.
“With the fragile state of the U.S. economy and a looming European debt crisis, Chairman Johnson believes it is imperative that our financial regulators operate at full strength,” his office said in a statement. “Chairman Johnson is committed to moving these nominations though the Banking Committee in a timely manner and is looking to schedule a hearing soon.”