Obama Fed Pick Diamond Referred Back to White House

Diamond’s Fed Nomination Sent Back to White House
Peter Diamond, nominee for the U.S. Federal Reserve board of governors. Photographer: Andrew Harrer/Bloomberg

The Senate sent the nomination of Peter Diamond, one of President Barack Obama’s three nominees for the Federal Reserve Board, back to the White House because of objections from at least one lawmaker.

The office of the executive clerk of the Senate said the procedural move occurred as part of actions taken on nominees without debate before the chamber left for a summer break. Obama is likely to resubmit Diamond’s nomination, an administration official said.

While Diamond, 70, may still win confirmation, it’s a snag for the Massachusetts Institute of Technology economics professor who once taught Fed Chairman Ben S. Bernanke. Alabama Senator Richard Shelby, the senior Republican on the Banking Committee, said last week that Diamond, while a “skilled economist,” may not be qualified to make decisions on monetary policy.

“Peter Diamond is a strong nominee who had bipartisan support in the Senate Banking Committee,” the panel’s chairman, Connecticut Democrat Christopher Dodd, said in a statement. “While it is unfortunate that Mr. Diamond’s name has been sent back to the President, I am confident that we will be able to act swiftly on his nomination when it is received in the Senate.”

The Senate took no action yesterday on the other two nominees, including San Francisco Fed President Janet Yellen for vice chairman and Sarah Bloom Raskin for a governor slot, leaving them to await confirmation after senators return Sept. 13. That means that if Governor Donald Kohn, whose separate term as vice chairman ended in June, departs as planned on Sept. 1, the Fed may be down to four governors for an unknown time.

‘Hard’ to Operate

“It’s very hard for the Federal Reserve to operate with only five people,” said former Fed Governor H. Robert Heller, who served on the board from 1986 to 1989. “Four is the minimum for a quorum. To have the Fed at full strength with seven persons there is very important.”

Obama separately yesterday lost the head of the Council of Economic Advisers, as Christina Romer resigned to return to a post at the University of California at Berkeley.

Diamond received the most opposition of the three Fed nominees in banking committee votes last week. The panel voted 16-7 in favor of Diamond, 17-6 for Yellen and 21-2 for Raskin, Maryland’s commissioner of financial regulation. All of the opposition came from Republican members.

Senate Rules

Under Senate rules, all nominations that aren’t completed before a lengthy recess go back to the White House and have to be resubmitted unless the Senate unanimously agrees to hold onto them and act later, Stewart said. Routinely, the Senate does agree to retain the nominations.

If a single senator objects, the name goes back to the president’s office. In Diamond’s case, at least one senator did. Don Stewart, a spokesman for Senate Republican Leader Mitch McConnell, said he didn’t know who objected.

“Professor Diamond is a skilled economist and certainly an expert on tax policy and on the Social Security system,” Shelby said July 28. “However, I do not believe he’s ready to be a member of the Federal Reserve Board. I do not believe that the current environment of uncertainty would benefit from monetary policy decisions made by board members who are learning on the job.”

Dodd said last week he “enthusiastically” supported all three picks for the Fed. “Each brings a remarkable combination of skills and experience,” he said before the committee vote. Dodd said he expected a floor vote on the nominees in September.