The Senate voted 70-24 to confirm the nomination of Jeremy Stein, a Harvard University professor and 74-21 to confirm Jerome Powell, an attorney and private equity investor who was a Treasury undersecretary for President George H.W. Bush.
Senate Majority Leader Harry Reid, a Democrat from Nevada, said the $2 billion trading loss announced last week at JPMorgan Chase & Co. (JPM) prompted his decision to push the nominations through and bolster the Fed’s regulatory expertise with the nominees, experts in financial markets.
Powell and Stein won approval in March from the Senate Banking Committee over the opposition of Republican Senators James DeMint of South Carolina and David Vitter of Louisiana. Vitter demanded a vote on the nominees in the full chamber, saying today on the Senate floor that Powell and Stein would probably back the “very dangerous” Fed policy of keeping interest rates near zero.
Senator Bob Corker, a Republican from Tennessee, said during Senate debate that he would support the nominees even as he remained concerned the central bank isn’t doing enough to ensure price stability.
“I am very concerned about the overly accommodative efforts that are taking place right now at the Federal Reserve,” said Corker. “These two nominees, candidly, do not represent the kind of more hawkish position I would like to see the Federal Reserve take,” yet “at the same time, these gentlemen both are qualified.”
No Policy Shift
“It doesn’t strike me that they’re going to fundamentally change the balance” of views on the FOMC, Alexander said.
The two new governors may help ensure policy continuity when Chairman Ben S. Bernanke’s term ends in January of 2014, he said.
“There has been a lot of speculation about how policy could change with potentially a new president and Bernanke leaving, and this reduces the chances of a discrete change in policy,” Alexander said. With fewer appointments for a new president to make “there’s a greater chance of continuity.”
At their nomination hearings before the banking committee this year, Powell and Stein said they would help the Fed withdraw stimulus when necessary yet did not express urgency to begin doing so.
‘Snuff Out’ Recovery
“There’s tremendous risk in the exit, and that’s well understood,” Powell said in response to a question about the Fed’s balance sheet during the hearing. “You don’t want to do it too early and snuff out a recovery that’s still weak and you don’t want to do it too late and cause inflation.”
Powell and Stein emphasized their experience with capital markets in their hearing. Powell highlighted his work as an investor and investment banker, while Stein discussed his research on the 1987 stock-market crash and the impact of monetary policy on the banking system.
“Having two experts on the financial markets at the Fed will make a significant difference,” said Christopher Low, chief economist at FTN Financial in New York. “That’s a huge increase in the Fed’s knowledge base and it’ll make it easier for them to judge how these new regulations are going to affect activity.”
Powell was a partner at the Carlyle Group LP (CG), a private- equity firm, from 1997 through 2005, where he led the industrial group within the U.S. buyout fund, according to a biography from the Bipartisan Policy Center, where he is a visiting scholar.
Stein served in the Obama administration from February to July 2009 as a senior adviser to the Treasury secretary and on the staff of the National Economic Council, according to Harvard’s website.
“Today’s broad bipartisan vote in the Senate reflects their deep knowledge of economic and monetary policy, as well as their distinguished backgrounds and unique experience,” Jay Carney, the White House Press Secretary, said in a statement.
Once sworn in, the new governors would give the Fed a complete seven-member board of governors for the first time since 2006.
The Fed’s board includes Chairman Ben S. Bernanke and Vice Chairman Janet Yellen, both economists; Daniel Tarullo, a former professor at the Georgetown University Law Center; Sarah Bloom Raskin, a former top bank regulator for Maryland; and Elizabeth Duke, who had been a community banker.
Powell will fill the term vacated by Frederic Mishkin, which expires in 2014. Stein will fill the seat of former governor Kevin Warsh, with a term that lasts through 2018.
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