UPDATE 3-US Senate votes put Fed board at full strength
* First time Fed board has been at full strength since 2006
* Nominees could bolster Bernanke's grip on monetary policy
* Stein, Powell seen making mark on regulatory policy
By Donna Smith
WASHINGTON, May 17 (Reuters) - The U.S. Senate on Thursday confirmed two nominees to the Federal Reserve, bringing its short-handed board up to full strength for the first time in six years as it wrestles with a tepid economic recovery and a revamp of financial rules.
The Senate voted 70-24 to confirm Harvard economist Jeremy Stein and 74-21 to confirm investment banker Jerome Powell.
The seven-member Fed board has been missing one or two members since 2006. During that time, it has contended with a virulent financial crisis and the deepest recession since the Great Depression, taking extraordinary actions to shore up the financial system and spur the economy.
Its aggressive and unconventional policies have put the Fed under intense scrutiny from conservatives who say it has been recklessly courting inflation. At the same time, some voices on the left argue it has done too little, with the unemployment rate at a still-lofty 8.1 percent.
"At this time when our economy is struggling to maintain forward momentum and the Federal Reserve is faced with difficult decisions about how to help the recovery without creating problems in the future, it's critical we not leave the Fed undermanned," Democratic Senator Charles Schumer said during a brief pre-vote debate.
Stein, who holds a doctorate in economics from the Massachusetts Institute of Technology, is a Harvard economist who served briefly as a senior adviser to Treasury Secretary Timothy Geithner. Stein, who specializes in stock price behavior and corporate investment and financing decisions, was also a staff member for President Barack Obama's National Economic Council.
Powell, a visiting scholar at the Bipartisan Policy Center in Washington, is a lawyer with Wall Street experience. He worked at Bankers Trust, the Carlyle Group and Dillon Read after serving as a Treasury undersecretary in the administration of former U.S. President George H. W. Bush.
The Fed's newest members are expected to be sworn in within several weeks.
The nominees were approved over the opposition of some conservative Republicans who worried the pair would rubber stamp Chairman Ben Bernanke's policies at the central bank. Fed board members almost always vote with the chairman on monetary policy, and the vote could strengthen Bernanke's hand against potential opposition from regional Fed banks if he feels the economy is in need of more support.
Republican Senator David Vitter, whose objections had nearly scuttled the nominations, complained during the debate that Bernanke's "extremely easy money policy" could be dangerous to the health of the economy.
The Fed has held benchmark overnight interest rates near zero since late 2008 and has bought $2.3 trillion in government and mortgage debt to try to push other borrowing costs lower.
Some others also expressed unease.
"I am very concerned about the overly accommodative efforts," Republican Senator Bob Corker said. "I think these low interest rates over a long period of time will create inflation in our country."
Still, Corker voted for Stein and Powell, saying they were qualified even though they were not as hawkish on monetary policy as he would like. A number of other Republicans, including Senate Minority Leader Mitch McConnell, also backed them.
With Europe teetering on the edge of recession and the U.S. economy trudging forward uncertainly, some economists say the Fed may have to ease monetary policy further to keep the recovery on track. Bernanke has said policy is set appropriately, but has not ruled out further action if needed.
BANKING REGULATION CONCERNS
Vitter, who led the opposition to the nominees, argued they could strengthen Bernanke's hand in issuing new regulations under the Dodd-Frank financial reform law that many Republicans oppose. "These two new members change the map," he said. "I think that will significantly push these regulations to the left."
The Fed, along with other U.S. regulators, needs to finalize rules on bank capital and liquidity, trading restrictions and how much exposure the largest firms can have to one another.
All of these rules are top concerns for Wall Street banks, which argue that proposed regulations go too far and will hamper their ability to make loans or help companies raise cash. Financial industry critics dismiss these arguments.
Former Fed governor Laurence Meyer, who is now with the forecasting firm Macroeconomic Advisers, said the two new additions to the central bank's board could make valuable contributions to the monetary policy debate, but that their mark was more likely to be felt in the regulatory arena given their academic and work experience with the finance industry.
"They will make especially important contributions to discussions and decisions related to financial stability and bank supervision and regulation," he said in a note to clients. "They will also add valuable insights on financial market developments."
Fed board terms run for 14 years, but Stein and Powell will fill unexpired terms. Powell's term would end on Jan. 31, 2014 and Stein's would end on Jan. 31, 2018.
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