David Wessel of the Wall Street Journal is reporting that the White House intends to nominate two economists for the Federal Reserve Board of Governors: Jeremy Stein of Harvard, and Richard Clarida of the bond fund Pimco and Columbia.
Each of the seven Fed governors (the Board is down to five right now) votes on setting monetary policy. With this week’s split Federal Open Markets Committee vote, it’s of greater significance that President Obama staff the Board with members likely to vote for the policies he supports — in this case, to vote with Bernanke in the direction of looser money. As Wessel notes, Stein is a Democrat but Clarida served in George W. Bush’s Treasury. It seems likely that the two picks are intended as a package deal to get Senate Republicans to allow their appointments to go through. Earlier this year, Sen. Richard Shelby successfully blocked Obama’s nominee, the Nobel Prize-winner Peter Diamond.
Based on their track records and writings, it seems clear that both Stein and Clarida would support further monetary stimulus. Stein is a former assistant Treasury secretary for Obama, and likely to be an inflation dove. And although Clarida is a Republican, he will also probably be a safe vote for more easing. He seems to be on the same page as Bernanke: skeptical of the value of government spending stimulus, but confident in the Fed’s ability to use quanitative easing and private sector bond purchases to boost the economy and repair the finance sector. In fact, in this regard he seems to be a Bernanke clone.
Although the Fed’s conduct of monetary policy is probably the number one concern for Obama right now, the Dodd-Frank financial regulation bill gives the Fed far greater regulatory powers than it had before. The next two Fed will be more than just two extra votes for Bernanke on the FOMC — if there’s more 2008-style trouble in the financial world, they will help to shape the response.
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