President Obama on Tuesday nominated a Republican and a Democrat to serve on the Federal Reserve, as he seeks to break a political logjam preventing many of his high-profile nominees for positions in economic policy and financial regulation from taking office.
The Democrat, Harvard professor Jeremy Stein, served in the Obama administration in the White House and Treasury Department. The Republican, Jerome “Jay” Powell, was a Treasury official in the George H.W. Bush administration and a former financial executive. Both men would bring specialized knowledge in finance — one from the academic perspective, the other from industry — to the Fed.
By pairing a Republican and a Democrat, Obama might be hoping that Republicans will allow them easier passage. Senate Republicans have blocked many of Obama’s top nominees, including MIT professor and Nobel laureate Peter Diamond, who was a nominee for the Fed and ultimately withdrew, and Richard Cordray, the nominee to oversee the Consumer Financial Protection Bureau.
The White House has repeatedly blasted Senate Republicans for standing in the way of Obama’s nominations for top economic positions, at a time when his stewardship of the economy is a leading issue in the presidential campaign.
Stein and Powell, if confirmed, would fill the two vacant seats on the seven-member Fed board of governors, led by Chairman Ben S. Bernanke. The nominations come as the Fed is wrestling with the divisive question of how much more to do, if anything, to try to create jobs.
The central bank has exhausted its conventional tool for stimulating the economy — lowering interest rates — and is discussing a range of unorthodox measures. These could include such a modest step as clearer communication with the public about the Fed’s intentions or a new round of government bonds purchases, which could have the effect of reducing interest rates further on a wide range of loans.
Some on the Fed’s policymaking committee, which consists of the governors plus five regional Fed bank presidents, believe that the central bank has not been aggressive enough in trying to spur employment. Others, however, think that the Fed has done too much, perhaps increasing the odds of spurring additional inflation.
The Fed has the dual mandate of keeping as many people employed as possible while trying to prevent the prices of goods and services from rising too quickly. Recent economic data suggest that joblessness is being reduced, albeit at an extremely slow pace, while prices are not rising at a faster pace than most economists deem worrisome.
It wasn’t immediately clear in which direction Stein and Powell would push, if confirmed. Many members of the Fed, including Bernanke, have adopted a wait-and-see approach, declining to take any major steps to increase support for economic growth or to reduce Fed programs benefiting the economy.
“We do not view Stein or Powell as having any particular bent on the conduct of monetary policy and, if approved, would view them as voting in line with the chairman and vice chair,” Michael Gapen, an analyst with Barclays Capital Research, said in a brief report Tuesday.
In general, Democratic economists have favored an activist Fed in reducing unemployment while Republican economists have been more worried about the prospect of inflation.
Stein, who teaches finance at Harvard, also could play an important role in the Fed’s oversight of large financial institutions. In addition to making decisions about unemployment and inflation, the Fed is a major financial regulator, with powers to oversee the largest financial firms. Since the passage of the Dodd-Frank financial reform bill last year, the Fed has been in serious discussions about what kinds of restrictions to put on large financial firms whose failure would pose a risk to the economy.
Stein spent several months in 2009 as an official on the White House National Economic Council and as an adviser to Treasury Secretary Timothy F. Geithner. In 2008, he was president of the American Finance Association, a prominent academic group.
Powell is a visiting scholar at the Bipartisan Policy Center, where he focuses on budget policy. He was the Treasury undersecretary for finance under Bush. He spent eight years at the Carlyle Group, the private equity firm, and worked as a lawyer and investment banker on Wall Street.
Powell was in the spotlight this summer when he published a widely cited report describing significant spending cuts if Congress did not increase the federal limit on borrowing. The report provided support for the Obama administration’s assertion that it was crucial to raise the debt ceiling. In a last-minute deal, Congress passed the legislation.
Obama last year nominated three Democrats to the Fed. Janet Yellen and Sarah Bloom Raskin were confirmed; Diamond was blocked and withdrew.