The White House’s three nominees to join the Federal Reserve cleared a key hurdle Tuesday and will move to the full Senate for confirmation.
The Senate Banking Committee voted unanimously to approve economist Stanley Fischer and former Treasury official Lael Brainard for seats on the central bank’s influential board of governors. Jay Powell, a hedge fund manager who worked under President George H.W. Bush, was approved for a second term. Powell currently sits on the board, though his term technically expired in January.
"The nominees have demonstrated the challenges facing the Federal Reserve board in returning to normal monetary policy," Republican ranking member Sen. Mike Crapo of Idaho said.
The Fed has been working without a full bench for months even as it embarked on the phaseout of its trillion-dollar economic stimulus program. There are seven seats on the board of governors, with only four now occupied. The ranks will shrink again next month when board member and Harvard economist Jeremy Stein steps down. That means that if the Senate does not approve President Obama’s nominees by the end of May, there will be only three members serving on the board for the first time since the Fed's current structure was established in 1936.
The high number of vacancies does not technically impede the Fed’s ability to carry out its duties. Under a 2003 policy amendment, a majority of members in office can constitute a quorum when there are fewer than five sitting governors. When there are five or more sitting members, four are needed to reach a quorum.
But the empty seats do deprive the Fed of brain power as it begins the tricky process of unwinding the unconventional monetary policies established in the wake of the financial crisis. Fischer, who was nominated to serve as the central bank’s vice chairman, is expected to bring significant insight into managing the return to a more normal economy. As head of the Bank of Israel from 2005 to 2013, he was credited with protecting the country from the deep recession that plagued other Western nations. Fischer has also been a mentor to other economic heavyweights, including European Central Bank President Mario Draghi, former White House chief economist Greg Mankiw and former Fed chairman Ben S. Bernanke.
Brainard was the top diplomat at Treasury for four years and could be particularly helpful as the Fed navigates complaints from emerging markets that the drawdown of U.S. stimulus might be destabilizing their economies. Powell is considered a centrist on monetary policy and brings real-world financial experience to what has become a heavily academic board.
Still, even if the full Senate approves all three Fed nominees, the central bank’s roster will not be complete. There will be two vacant seats after Stein’s departure next month. A White House spokeswoman declined to comment on when the administration plans to announce nominees for those slots. Sen. Mike Johanns (R-Neb.) said the White House should consider adding someone with experience in community banks to the Fed.
"I think the board is not adequately diverse in terms of background," Johanns said.