In late January President Obama submitted to the Senate the appointments of Jeremy Stein and Jerome Powell to the Board of Governors of the Federal Reserve System. This past Tuesday the Senate Banking Committee held a nomination hearing for Stein and Powell. None of this really matters, as per Section 10 of the Federal Reserve Act, neither Stein or Powell can serve currently on the Fed’s Board.
Recall that Section 10 requires that in regard to members of the board ”not more than one of whom shall be selected from any one Federal Reserve district”, the President’s selections ”shall have due regard to a fair representation of…geographical divisions of the country.” In plain English, this means you cannot have more than one Fed governor from the same Fed district.
According to his paperwork, submitted to the Senate, Professor Stein is from Massachusetts. Unfortunately current Fed governor Dan Turullo is from Massachusetts. Mr. Powell is from Maryland, as is current governor Raskin. As this was an issue with the failed nomination of Peter Diamond to the Fed, you’d think the White House (or the Fed) would have bothered to read the statute with these nominations.
Don’t get me wrong, this isn’t about personal qualifications, this is about the law. In fact, as far as Democratic academics go, I am hard pressed to think of a better nominee than Jeremy Stein. Much of his work has been on the topics of monetary policy and financial regulation, unlike Professor Diamond. And not only has his work been relevant, it has been thoughtful, insightful and original. Like current governor Turullo, Stein seems to get many of the deep flaws in our current bank capital system. As importantly he also gets the impact of down-payment requirements as they related to housing markets, something outright rejected by many housing advocates on the left. If the Fed was not already packed with academics, he’d be a fine addition.
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While I do not agree with the President’s desire to pack the Fed board with easy money advocates and friends of Wall Street (Powell), I do believe that such is his prerogative, as long as he can get the advice and consent of the Senate. I do, however, believe the President has to do so within the bounds of the law. He should take his search for Keynesians to flyover country (maybe on one of his trips to Ohio), which is not currently represented on the Fed Board.
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