WASHINGTON (Reuters) - The 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. He also was a staff member for President Barack Obama’s National Economic Council. Stein specializes in stock price behavior, corporate investment and financing decisions.
Powell is a visiting scholar at the Bipartisan Policy Center in Washington. He is a lawyer who also brings Wall Street experience to the board. 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 two 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.
The nominations had been held up in the Senate after they were put forward by President Barack Obama in December.
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.
“I am very concerned about the overly accommodative efforts,” Republican Senator Bob Corker said during the debate. “I think these low interest rates over a long period of time will create inflation in our country.”
Still, Corker voted in favor of Stein and Powell, saying that 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 step in with further easing of monetary policy to keep the recovery on track.
Vitter, who led the opposition to the nominees, argued that the two 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. bank regulators, has to finalize rules on capital and liquidity requirements, 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.
Fed Governor Daniel Tarullo has taken the lead for the Fed in crafting the rules. But it is an area where Stein and Powell could play a major role, given their academic and work experience with the finance industry.
Fed board terms run for 14 years, but Stein and Powell will fill unexpired terms. Powell’s term would end on January 31, 2014 and Stein’s would end on January 31, 2018.
Additional reporting by Dave Clarke, editing by Kenneth Barry and Dan Grebler