President Barack Obama said Tuesday he'll nominate Harvard economist Jeremy Stein and former private-equity executive Jerome Powell to the two vacant spots on the Federal Reserve Board of Governors. If confirmed, Stein and Powell will be part of the Federal Open Market Committee that sets short-term interest rate targets and monetary policy for the Fed.
Both men have experience in the public sector. Stein served as a senior adviser to the Treasury Secretary and on the staff of the National Economic Council in the first year of the Obama administration. Powell also did a stint at the Treasury, serving as the undersecretary for finance under President George H.W. Bush.
Stein, a Democrat, has been a professor at Harvard since 2000. His work as an economist has touched on risk management and financial regulation, key concerns for the Fed as it seeks to continue the implementation of Dodd-Frank. He co-wrote an editorial for the Financial Times urging faster adoption of the Basel III standards and has written in academic journals about the need for strong global financial regulation to prevent a repeat of the 2008-2009 financial crisis.
Stein on Basel:
Banks have argued that higher capital requirements raise their financing costs and thus reduce their willingness to lend. But there is now widespread understanding in the regulatory and academic community that this argument is overstated. Research, including our own, shows that the long-term impact of higher capital on loans is too small to have a big impact on growth. More capital makes banks safer, lowering the returns demanded by shareholders and creditors. Overall their costs increase only slightly, hence the reason why regulators feel comfortable raising standards after a period of adjustment.
Powell, a Republican, was a partner with private-equity firm The Carlyle Group from 1997 to 2005. Since, then he has done work for a number of charitable and advocacy organizations, including the Bipartisan Policy Center, where he did media appearances warning of the negative consequences of failing to extend the debt ceiling earlier this year.
Powell on the debt ceiling:
As the president said today and our detailed debt limit analysis shows, if the debt ceiling is not raised before the government runs short of cash in early August, federal spending will have to be reduced immediately. A spending reduction of that magnitude would require cuts to many popular and important programs, and the government would be faced with a series of unattractive options and have to prioritize what bills are and are not paid.
We urge members of both parties in Congress to reach an agreement immediately to reduce our deficit.
The bipartisan split among the two nominees may be intended to help ease their confirmation in the Senate. President Obama's last nominee to the board was Nobel-prize winning economist Peter Diamond, who withdrew after his confirmation was stymied by Republican opposition in the Senate.
What do you think? Do they seem like good picks to you?