Old feud appears to sink Obama's Fed nominees

Mon May 7, 2012 10:47am EDT
 
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By Mark Felsenthal and David Lawder

WASHINGTON (Reuters) - President Barack Obama's two nominees to the Federal Reserve appear likely to fall victim to a long-running political feud, which would leave the central bank short-handed as it struggles with tough regulatory and monetary policy questions.

Republican Senator David Vitter has demanded that the Senate hold a debate before any vote on the nominees, which would require Democratic leaders to muster a super majority to move forward - a hurdle that may be too high to clear.

As a result, the Senate may end up abandoning the nominees, Harvard economist Jeremy Stein and investment banker Jerome Powell, and leave a decision on filling out the normally seven-member Fed board until after this year's presidential election.

"I refuse to provide Chairman Bernanke with two more rubber stamps who approve of the Fed's activist policies," Vitter said when asked if he planned to lift his hold on the nominations.

Leaving the central bank short-staffed deprives it of top-notch monetary policy and financial market expertise that could prove valuable given the stop-and-go nature of the U.S. recovery and economic threats coming from Europe.

It could also undermine the institution's efforts to get up to speed on regulatory matters now that Congress has vastly expanded its responsibilities for ensuring financial stability.

"The demands on the Fed right now are intense," said Nathan Sheets, an economist for Citigroup and the former director of the Fed's division of international finance. "Leaving talented nominees on the sidelines - when there is so much scope for them to contribute - increases the stresses on the Fed and makes these demands even heavier than they would otherwise be."

More troubling to some is the antipathy toward the Fed that Vitter's opposition reflects. His move is merely the latest skirmish in an eye-for-an-eye vendetta in which both parties have blocked Fed nominees in the hope they would soon capture the White House.   Continued...

 
U.S. President Barack Obama shakes hands with supporters during a campaign event at Virginia Commonwealth University in Richmond, Virginia May 5, 2012. REUTERS/Joshua Roberts