The understaffed Fed
Speaking of the government's confirmation crisis, what does it mean for the Fed's vice chairman and two of its governors to be tied up in the Senate? Well, nothing good:
Each of the Fed governors has some administrative responsibility over a key area of the central bank. Banking expert Dan Tarullo, for example, oversees bank supervision, and Elizabeth Duke oversees consumer protection matters. Kohn, who was vice chairman until June, had a particularly large portfolio. He was in charge of the research divisions of the Fed -- the economists in monetary affairs, research and statistics, and international divisions who prepare the analysis that Fed leaders use to make policy decisions. And he also oversaw matters involving the regional Fed banks across the country, approving their budgets, major operational decisions, and who would be on their boards of directors. If the vacancies persist, it would cause significant operational strains as the remaining governors are stretched thin, and important administrative aspects of running an institution with almost 2,000 employees in Washington (and another 16,000 around the country) could easily fall by the wayside.
Then there's monetary policy, the Fed's core function. There is now a strange situation in that the institution in charge of guiding the U.S. economy has only one PhD economist among its top officials, Chairman Ben S. Bernanke. The other three currently serving governors are not monetary policy specialists (they are Tarullo, a former law professor, Duke, a former banker, and Kevin Warsh, a financial markets expert). Two of Obama's nominees are economists, San Francisco Fed president Janet Yellen and MIT professor Peter Diamond. This is, as it happens, a pretty terrible time for the Fed not to have as many smart economists in its upper ranks as possible; the central bank faces a massively consequential decision over the coming months of whether to undertake new steps to try to boost the economy.
Though as Tim Fernholz also pointed out, it's not in fact true that the Federal Reserve can't undertake extraordinary measures without five of its governors present and voting. The institution made a rule after 9/11 allowing the Fed to take action without a quorum. That rule, which was supposed to protect the central bank from a terrorist attack that killed multiple members, is now protect ng us from the consequences of Senate dysfunction.
Photo credit: By Brendan Smialowski
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