Packing the Federal Reserve Board by Pete the Banker

March 16, 2010

SHARE

While attention generally focuses on the importance of the President’s nomination of Supreme Court Justices, the Federal Reserve Board gets lesser attention despite its importance.   Obama nominated his first Board replacement, Daniel Tarullo, and the Senate confirmed Tarullo to fill a vacancy on the Federal Reserve Board immediately after Obama’s inauguration. 

Donald Kohn recently resigned as the Vice Chairman of the Federal Reserve Board allowing Obama the opportunity to nominate a successor with his replacement subject only to Senate confirmation.  In addition to Kohn’s position, two other current Board vacancies currently exist and need to be filled to complete the seven person Board.   Once the vacancies are filled, Obama will have selected a solid majority of the Board’s members.  This does not include Ben Bernanke’s recent extension as Chairman of the Federal Reserve Board. (here)

Janet Yellen, President of the San Francisco Federal Reserve Bank, is apparently Obama’s nominee choice to fill the vacancy of Donald Kohn, the Vice Chairman.  Yellen, a Clinton  appointee, has generally emphasized targeting employment/unemployment, rather than inflation as a primary concern of monetary policy.  She recently has made stated that the fears of inflation may be overdone and, “I believe that the more worrisome challenge for price stability over the next few years stems primarily from the sizable amount of slack in the economy.  Whether measured by the output gap, the unemployment rate, the manufacturing capacity utilization rate, or whichever measure you like, the economy is running well below its potential. As a result, inflation is already very low and trending downward.”  (here) Since she has also been vocal in support of the Administration’s stimulus plan, one suspects her tendency on the Federal Reserve Board will continue to be supportive of an accommodating monetary policy.

The Obama Administration has dictated fiscal policy over the past year with the help of the Democrat controlled Congress which has lacked spending restraint and also relied on heavy Treasury heavy borrowing.  Regardless of whether or not Yellen is ultimately confirmed, once Obama has appointed four of the seven Federal Board members, he will be able to fortify the Fed’s cooperation in supporting his Keynesian approach through an accommodative monetary policy promoting the expansive monetization of the Treasury debt.  Massive Federal spending, continued heavy Treasury borrowing and the willingness of the Federal Reserve to buy Treasuries in the open market will rapidly expand the nation’s money supply resulting in massive inflationary pressures in the years ahead.
Tell ’em where you saw it. Http://www.victoriataft.com