The U.S. Senate confirmed two nominees to the Federal Reserve board and made Stanley Fischer Fed vice chairman less than a week before policy makers gather to consider further tapering record accommodation.
Lael Brainard, former U.S. Treasury undersecretary for international affairs, won approval yesterday as a Fed governor, while Jerome Powell gained a second term. With the confirmations, five of the seven seats on the Fed board are filled for the first time since Ben S. Bernanke stepped down at the end of his second term as chairman in January.
A shift in the roster of Fed officials may prompt changes to their estimates on the likely path of interest rates, which will be released along with a policy statement after next week’s Federal Open Market Committee meeting. The median projection in March showed officials expecting the fed funds rate to rise to 1 percent at the end of 2015 and 2.25 percent a year later.
“You might get a little drift one way or another” in the officials’ projections for the main interest rate, according to Michael Hanson, senior U.S. economist for Bank of America Corp. in New York and a former Fed economist. Still, investors seeking clarity on how policy may change will need to wait for the officials’ public comments and economic projections, he said.
Three Fed governors have left in the past nine months, in addition to Bernanke, who was succeeded by Chair Janet Yellen.
Brainard’s nomination passed 61-31, while the vote for a second term for Powell was 67-24. The two were nominated by President Barack Obama in January, along with Fischer, former head of the Bank of Israel. Fischer, whose nomination to the board was approved last month, became the No. 2 Fed official in a 63-24 vote.
The FOMC is on track this year to end monthly bond buying that has pumped up Fed assets to $4.34 trillion, and to begin considering when to raise the main interest rate for the first time since 2006.
The Fed’s median forecasts for inflation, unemployment and growth may also be more subject to change after the addition of Fischer and Brainard, the departure of Jeremy Stein from the Fed board last month, and the succession on June 1 of Cleveland Fed President Sandra Pianalto by Loretta Mester.
The White House hasn’t said who will be nominated to fill the two empty Fed Board seats. Yellen has said she favors including a community banker after the departure of governors with such experience: Elizabeth Duke and Sarah Bloom Raskin. Stein stepped down on May 28 after two years as governor to return to teaching at Harvard University.
With the new policy makers not having offered forecasts, it’s too soon to know how they may influence the central bank’s median estimates, according to Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.
“It’s probably too close to call,” he said.
Fischer, 70, has spent much of the past quarter-century in global policy making as a central banker, top International Monetary Fund official and former World Bank chief economist. He left the IMF in 2001 and joined Citigroup Inc. as a vice chairman from 2002 until 2005. Last June he stepped down as Bank of Israel governor, midway through a second five-year term.
Fischer succeeds Yellen in a vice chairman post that she used to promote more open communications, including publication of Fed goals for employment and inflation.
Brainard, 52, the Treasury Department’s top international official before stepping down in November, brings to the FOMC expertise in international economics. At meetings of global finance ministers including the Group of 20, Brainard was the highest-ranking U.S. official after the Treasury secretary.
At the Treasury, Brainard pushed Europe and China to accelerate economic changes including flexible exchange rates and fiscal policies that stimulate growth. She served as an economic adviser under President Bill Clinton from 1995 to 2000.
Brainard, who has masters and doctoral degrees in economics from Harvard University, was born in Hamburg, Germany. Her father was a Cold War-era U.S. diplomat, and she spent much of her childhood in Germany and communist Poland, an experience she has said “did profoundly influence my view about how America leads in the world.”
At her March confirmation hearing before the Senate Banking Committee, Brainard pledged to strengthen the central bank’s role in safeguarding the financial system.
The Fed must “continue robust implementation of financial reform and enhanced supervision to ensure that no financial institution is too big to fail and to discourage the massive leverage and opaque risk-taking that contributed to the financial crisis,” she said.
Aside from Fischer’s and Brainard’s Senate testimony during their confirmation hearings, there’s still no evidence of how they’ll vote on policy, said Ira Jersey, a New York-based U.S. interest-rate strategist at Credit Suisse Group AG, a primary dealer that trades government securities directly with the Fed.
“We won’t really know until they start to go out and make speeches,” Jersey said.
Senator Bernie Sanders, a Vermont independent, said in a statement he opposed all three Fed governors because they haven’t shown they’ll do more to stimulate the economy and to stand up to Wall Street as “tough financial regulators.” The jobless rate last month held at a five-year low of 6.3 percent.
“The Fed is not doing enough to help create the millions of decent-paying jobs that Americans desperately need,” Sanders said. “We need Fed governors who will act with a fierce sense of urgency to address the unemployment crisis.”
Powell, 61, is a Republican who served at the Treasury under President George H.W. Bush as an undersecretary responsible for domestic finance from 1990 until 1993. He hasn’t dissented from an FOMC decision during two years as governor.
Powell spent his career as an attorney and an investment banker and, from 1997 to 2005, was a partner at Carlyle Group LP, a private-equity firm. He was first appointed in 2012, put forward along with Stein, a Democrat, as part of a package of nominees designed to win bipartisan support.