President Obama’s nominees for Federal Reserve are slated to appear Thursday before the Senate Banking committee for their confirmation hearing. Here’s a quick refresher on who the candidates are and how they could shape the central bank:
Stanley Fischer: The former governor of the Bank of Israel is a giant in the world of central banking, as Wonkblog has repeatedly pointed out here and here. As a professor at MIT, he mentored an all-star cast of students that includes former Fed Chairman Ben S. Bernanke, European Central Bank President Mario Draghi and former chief White House economist Greg Mankiw. He battled the Asian financial crisis of the late 1990s as the No. 2 at the International Monetary Fund. He took over the reins at the Bank of Israel in 2005 and shepherded the country through the global financial crisis before stepping down last summer. He could have settled into a nice, quiet retirement -- until Fed Chair Janet Yellen recruited him to the central bank as her No. 2.
His opening statement suggests he will not be in a hurry to reverse the Fed's easy-money stance, and like Yellen, he points out the human toll of high unemployment. He also seems to elevate ensuring financial stability to the same priority as the Fed's dual mandate from Congress: fostering maximum employment and price stability. Here are the key quotes from his testimony:
At present, achievement of both maximum employment and price stability requires the continuation of an expansionary monetary policy – even though the degree of expansion is being gradually and cautiously cut back as the Fed reduces its monthly purchases of longer-term Treasury securities and agency mortgage-backed securities.
I would like to add that in their efforts to achieve aggregate goals, policymakers should never forget the human beings who are unemployed, nor the damage that high inflation wreaks on the economy and thus on the lives of so many people.
The Great Recession has driven home the lesson that the Fed has not only to fulfill its dual mandate, but also to contribute its part to the maintenance of the stability of the financial system. Almost always, these goals are complementary. But each of them must be an explicit focus of Fed policy.
Lael Brainard: She was the Treasury Department’s top diplomat for four years, wading into the weeds on China’s economic rebalancing and the European sovereign debt crisis. A New York Times profile called her a “calm but extraordinarily persistent negotiator” who was willing to twist arms when necessary. Her international experience could be a boon to the central bank as emerging markets struggle to adjust to the pullback in Fed stimulus and higher U.S. interest rates down the road. Brainard is also a veteran of the Clinton White House and a former professor at MIT.
Her testimony seems more wary of the effectiveness of the Fed's efforts to stimulate the economy. She refers to the central bank's role in combating inflation before fighting unemployment. Brainard also said the Fed has a "critically important and appropriately delimited role" in supporting the recovery.
Here are the best bits of her statement:
If confirmed, you can be sure I will be intensely focused on safeguarding the Fed’s hard won credibility in preserving price stability, while supporting its indispensable role in getting Americans back to
work, and strengthening its role in ensuring a safe and sound financial system.
The Federal Reserve has a critically important and appropriately delimited role in addressing the challenges we face as a nation in the wake of a deeply damaging financial crisis. It will need to carefully calibrate the tools of monetary policy to ensure an appropriate pace of normalization, while supporting the fragile recovery in our job market and ensuring inflation expectations remain well anchored.
Jay Powell: He’s actually already at the Fed. He joined in 2012 to finish out the last two years of an unexpired term. Now he’s up for his own 14-year term. He has been a centrist at the Fed on monetary policy and brings expertise in financial policy. He worked in the first Bush administration and at the private equity firm The Carlyle Group. He was also the richest member on the Fed’s board with net worth totaling between $21 million and $72 million.
We detected no surprises in his testimony, especially as he's a known quantity at the Fed. But he channels former Bernanke in describing the central bank's balancing act as it begins to eye normal policy.
The task for monetary policy will be to provide continued support as long as necessary, and to return policy to a normal stance over time without sparking inflation or financial instability. This will require a careful balancing, as there are risks from removing monetary accommodation too soon as well as too late.
All three nominees will likely sail through committee and the full Senate, but a date for the vote has not yet been set. Compass Point’s Isaac Boltansky put together this useful chart illustrating their likely positions on monetary policy. Doves are seen as more willing to tolerate higher levels of inflation; hawks want nothing to do with it. The Fed has had a dovish bent in recent years as officials have tried to stimulate the economy to bring down the unemployment rate.
But before you print this chart out and pin it up in your cubicle, be warned: More change is coming. Fed Gov. Sarah Bloom Raskin was confirmed Wednesday to become the second-in-command at Treasury, creating another vacant seat on the board.
Meanwhile, the Federal Reserve Bank of Cleveland will get a new leader on June 1. Loretta Mester will replace Sandra Pianalto, who is retiring. Pianalto is considered a dove, but Mester hails from the Federal Reserve Bank of Philadelphia -- which is known for its hawkish views. Mester will hold one of the rotating slots reserved for regional bank presidents on the Fed’s policy-setting committee this year, so she could add another voice to the hawkish minority.
Bottom line: A new cast of characters will star in The Fed, Season 2: The Return to Normal Policy. Their chemistry will help determine how the story ends.