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Obama to name Fed appointees -- will anyone care?

President Obama's finally making his Fed nominations official:

The White House on Thursday will tap Janet Yellen, president of the San Francisco Federal Reserve Bank, to be the board's vice chairman, and Massachusetts Institute of Technology economist Peter Diamond and Maryland state banking regulator Sarah Bloom Raskin to sit on the seven-member board, according to people familiar with the matter. The Senate is likely to confirm them.

This reminds me that I'd meant to link to Matt Yglesias's Outlook piece on the weird difference between our treatment of Supreme Court vacancies and our treatment of Federal Reserve vacancies.

If there were three simultaneous vacancies on the Supreme Court, Washington would be a war zone, and the volume of direct mail would solve the post office's financial problems. Not so with the Federal Reserve. When the Fed is discussed in a political context, the talk normally comes from the fringe (as in the Ron Paul fan club's chants of "End the Fed"). Yet its decisions powerfully affect everyday life in a way that's rare for a court decision. ...

For all that elected officials talk about how their policies will create jobs or their opponents' policies will destroy them, in normal times it's the Fed -- not the White House, not Congress -- that determines the pace of job creation. (Its dual mandate from Congress, after all, is to promote stable prices with maximum employment.) When the Fed's Open Market Committee wants the economy to grow faster, it reduces interest rates. When it wants to slow things down, it raises them. The committee's willingness to cut rates to historically low levels in the wake of the 2001 terrorist attacks and the dot-com bust helped avoid a severe recession -- but many also think that its willingness to hold them so low for so long fueled the credit boom that led to our current bust.

Since the beginning of the financial crisis in 2008, the Fed has grown more powerful. It has effectively nationalized key parts of the banking system, taken loads of sketchy assets from wobbly banks onto its balance sheet and printed huge sums of money to stimulate the economy. The effects of these actions on average Americans cannot be overstated: Thanks to the Fed, we aren't hoarding money under our mattresses or making runs on banks. And we do not have to worry about the kind of deflationary downward spiral that has mired the Japanese economy for a decade.

As I understand it, Supreme Court nominations weren't heavily politicized until fairly late in the court's history. Decisions like Brown v. Board of Education and Roe v. Wade clarified the stakes for people. So it's worth wondering whether the financial crisis will do a bit of that for the Fed: It's made the institution more visible, given it new powers and made clear how important it is even in times of apparent quiet. Partisans on both sides increasingly realize they need to care about the institution's direction, and that means caring about who gets appointed. On the other hand, I haven't heard much about Diamond or Raskin since their names were first floated, so maybe there's been no change at all.

By Ezra Klein  |  April 29, 2010; 9:23 AM ET
Categories:  Federal Reserve  
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let's hope Fed nominations don't become as politicized as Court nominations.

Posted by: jduptonma | April 29, 2010 9:27 AM | Report abuse

Peter Diamond is, among other notable accomplishments in academic economics, a Social Security guy; he wrote a paper/plan/book on Social Security with Peter Orzsag 5 or 6 years ago

Posted by: bdballard | April 29, 2010 9:50 AM | Report abuse

It depends on what you mean by politicization. Certainly, there was a lot of politics involved. Washington appointed only Federalists to the Court. Chief Justice Marshall was a political animal in Marbury v. Madison. Jeffersonians were highly upset by the Court's early rulings on the expanse of federal power and federal domination of states. We just don't really remember McCullough or the federal smackdown of state courts trying to overrule the Supreme Court because they've been definitively settled for the modern interpretation.

The Dred Scott decision was a hyper-political decision by pro-slavery partisans.

Posted by: jesmont | April 29, 2010 10:12 AM | Report abuse

Only if he picks another tax cheat will people care.

Posted by: obrier2 | April 29, 2010 10:21 AM | Report abuse

Fed nominations aren't a life time appointment - they also don't have the power to grant something unconstitutional. Those two considerations give a Supreme Court nominee a lot more importance than Fed nominees.

The Court is also a constitutional office. The Fed isn't, if congress wanted to they could repeal the Fed, or change it drastically by legislation. They can't do that we the Court.

Posted by: ChicagoIndependant | April 29, 2010 10:26 AM | Report abuse

I'd respect Yglesias just a touch more if he when praising the FED also mentioned the negative effects of its efforts. They need to consider pulling back before we get another bubble.

Posted by: visionbrkr | April 29, 2010 10:44 AM | Report abuse

Although the Fed isn't a lifetime appoint, 14 years is pretty damn long. I think two things militate against this. First, the Fed chair is much more visible than the other members of the board and has a fair amount of personal power in controlling the board's agenda. Second, at least for the time being, the level of even economic-buzzword literacy in the senate and the usual oppo research teams is so low that it would be very difficult to ask gotcha questions that wouldn't be turned back on the questioner. In short, senators and their handlers don't really know what they would want Fed board members to do on a day-to-day basis, so it's hard to use that as a criterion to accept or reject.

(In addition, the pool of nominees for fed appointees is typically so narrow that it doesn't matter. If a president were to nominate Sam Bowles or Bernie Sanders to the position that would be a different matter.)

Posted by: paul314 | April 29, 2010 10:58 AM | Report abuse

Wanting the Federal Reserve abolished is a fringe position now? Gonna have to disagree with you there, Ezra. You may disagree with the view, but I wouldn't call it something fringe, especially seeing how the Federal Reserve was the biggest culprit of our recent recession. It's a pretty understandable, reasonable and pragmatic position to take to get rid of a system that socializes the losses and privatizes the gains, don't you think?

Posted by: BrianDefferding | April 29, 2010 11:06 AM | Report abuse

Well, I can't wait until Rush or Hannity start a rumor that Obama will pick a black man to help black people and to keep "entitlement" programs constitutional so that blacks and minorities could keep sitting at home sucking the hard-working man's dollar. Of course this would not be true, but that doesn't stop RUSH, SEAN, GLENN, or Walker Crankhouse, from spilling the lies. We need a judge who knows how it is to be an average man, a T. Marshall. I came across a story that spoke about who Obama definitely couldn't appoint check it out, it was interesting

Posted by: republicanblack | April 29, 2010 11:20 AM | Report abuse

visionbrkr, are there any significant signs that inflation is returning? A deflationary spiral is a far more present danger to the economy. Lowering unemployment should be job 1 at the fed, not worrying about non-existent inflation.

Posted by: srw3 | April 29, 2010 11:42 AM | Report abuse


You're right jobs should be priority 1. In fact they should have been priority one last year but just became a priority this year. Remember the House republicans asking last summer "Where are the jobs?" in their one minute speeches? I do.

I'm not saying they should do it right now but I could absolutely see them holding rates down while the housing bubble inflates back up. And this time it couldn't be Bush's fault could it???

housing prices are going up. If that continues they need to consider action. I'm not saying today, i'm not saying in the next several months but there are several FED chairmen who are already warning that the inaction of the FED to allow rates to move is problematic.

Forget problematic, in 6 months when nothing's been done and we're at 9.3% or 9% unemployment but housing prices are going back towards inflated levels it'll be political and some of us will call them on it.

Posted by: visionbrkr | April 29, 2010 11:53 AM | Report abuse

I think FDR would find it amusing to find that Supreme Court nominations were not previously a political issue. You know, if he weren't dead and all.

Posted by: gcedwards10 | April 29, 2010 12:22 PM | Report abuse


There actually is some sign that price inflation is brewing.

The deflation everyone has been concerned with appears to have been a 3 month phenomenon associated with the panic of 2008, with prices sinking 3.4% during 2008Q4 (or sinking 12.8% at an annualized pace). Since that time, price inflation has largely returned to the 2000-2008 trend.

Since the end of 2008, consumer prices are up 3.1%, and 2.3% over the past twelve months. Some economists like to point out that core CPI inflation is down to 1.1% growth. However, CPI cash inflation - including food and energy but excluding non cash transactions such as owner's equivalent rent - is up 3.2% over the past twelve months.

In any case, there wasn't a whole lot of concern about price inflation from 2001-2003, and yet low interest rates are widely condemned as being a primary contributor to the housing boom and bust.

Nominal GDP growth is running at 6% pace, inflation is above 2%/yr and unemployment has fallen from 10.1% to 9.7%. Currently, real short term interest rates are -2.0%. While some near term inflation might reduce real wages and lead to a pick up in employment, I think we need to be careful about setting rates too low for the third time in a row. I'd be more open to a Sumnerian monetary policy in which the Fed allows for some catchup to the old nominal GDP trendline via targeting NGDP futures, but if we're going to focus on interest rates then we should tighten sometime in the near future.

Posted by: justin84 | April 29, 2010 12:50 PM | Report abuse

@vb: Remember the House republicans asking last summer "Where are the jobs?" in their one minute speeches? I do.

I remember republicans (and conservadems) succeeding in shrinking the stimulus which meant that it wouldn't create as many jobs.

I also remember that the stimulus package though too small by 1/2, has created 800K to 2500K jobs depending on methodology used to calculate job creation.

The stimulus was about 1/3 tax cuts, 1/3 aid to state and local governments, 1/3 direct govt spending for infrastructure and other projects. The entire 900 billion should have been about 1.3-1.5 trillion and split 2/3 direct spending and 1/3 aid to states and localities, since these are the best ways to stimulate job growth. The tax cuts should have been considered as a separate measure. I think Obama made a mistake by not insisting on a larger package.

I don't seem to remember republicans offering any solutions to the jobs crisis beyond tax cuts (which constituted about 1/3 of the stimulus already) and further deregulation (which is a dubious job creation strategy).

I also recall these same republicans demagoguing the stimulus in congress and then going back to their districts and bragging about how they brought jobs there, without mentioning that the jobs were created by stimulus money.

Posted by: srw3 | April 29, 2010 1:01 PM | Report abuse


I think the difference between the Fed and the Court is similar to the difference you noted between financial reform and health care reform: not only are people more familiar with the issues before the Court than the Fed, but the metrics for understanding the policy disputes are incremental.

Posted by: frankiannuzzi | April 29, 2010 1:26 PM | Report abuse


you're right about 2001-2003 and the low interest rates then and fools are doomed to repeat their failures. The problem is that Dems are too worried about their skins to do what is right for the economy and while they may not end up inflating the bubble to the extent that it was before I'm sure they'll be willing to try as long as we have scapegoats for them.

Now i'm not saying that Republicans wouldn't do the exact same thing because they probably would. That's why we need to find a way to make the FED less affected by politics.

Posted by: visionbrkr | April 29, 2010 2:20 PM | Report abuse

Ron Paul had the majority of the house co-sponsoring his bill to "Audit the Fed", which was the Federal Reserve Sunshine Act. Apparently the majority of the House of Reps counts as fringe. I know you are a liberal, Ezra, but is such distortion really necessary? Can't a professional reporter ignore his bias enough to leave out such obviously biased language?

Posted by: lajdawg | April 30, 2010 3:36 AM | Report abuse

3 more Keynesians. We're all screwed.

Janet Yellen, 63
President, Federal Reserve Bank of San Francisco
Prior Positions: Professor, University of California, Berkeley; Chair , White House Council of Economic Advisers; Governor, Federal Reserve Board
Education: Yale , Ph.D. (Economics); Brown , B.A. (Economics)
Academic Interests: Unemployment and labor markets; monetary and fiscal policies; international trade and investment policy.

Peter Diamond, turns 70 on Thursday
Professor, Massachusetts Institute of Technology
Prior positions: Professor, University of California, Berkeley
Education: MIT, Ph.D. (Economics); Yale , B.A. (Mathematics)
Academic Interests: Social Security, pensions, taxation.

Sarah Bloom Raskin, 49
Maryland Commissioner of Financial Regulation (Aug 2007 to present)
Prior positions: Managing Director, Promontory Financial Group; General Counsel, Worldwide Retail Exchange; General Counsel, Columbia Energy Services Corp; Counsel, Senate Banking Committee; Staff, Federal Reserve Bank of New York; Staff, Congress's Joint Economic Committee
Education: Harvard Law School, J.D.; Amherst , B.A. (Economics).

They are all prominent members of the Washington-Wall Street-Academia Economics Complex, whose members shift between government, Wall Street, and academia. All of the nominees are Keynesian economists. They are known as regulators, technocrats, and inflationists.

Posted by: staticvars | April 30, 2010 3:10 PM | Report abuse

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