Fed board vacancies to topple workload

The Federal Reserve's already weighty agenda could get heavier next year if the board's expected vacancies go unfilled for too long.

By February, the seven-member Fed board could be down at least three governors as it embarks on major regulatory and monetary policy decisions next year, including a tapering of its massive stimulus program.

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The unprecedented number of potential vacancies means that the remaining governors would be stretched thin and could find it difficult to handle a burgeoning workload.

"It will be very tough and very challenging and you'd want to have all the help you can get," said John Makin, a Fed and economic policy expert at the American Enterprise Institute. "It's not a good time to be short-handed."

Steve Oliner, a monetary policy expert with the American Enterprise Institute, said a board of only three or four governors would be one of the most thinly staffed in the history of the Federal Reserve.

He estimated that the only time there were more than two vacancies was a period after Donald Kohn resigned and before Yellen came on board in 2010.

Otherwise, the board has regularly maintained at least five members.

"While the board can operate with only four governors it's a very tough situation internally," Oliner said. "There is a huge amount of administrative work for four instead of seven. It's a very big burden on those left behind."

President Obama will be charged within the next several months of finding replacements for departing central bank Chairman Ben Bernanke, Sarah Bloom Raskin, who is up for a deputy Treasury job, and Elizabeth Duke who left in August.

A fourth post could open, too.

Jay Powell's term is up at the end of January but he could be reappointed or remain in office until a replacement is nominated.

The president recently nominated Vice Chairman Janet Yellen to take Bernanke's slot as chairman.

"It's important not to let more than two vacancies go," said Joseph Gagnon, an economist at the Peterson Institute of International Economics.

Gagnon suggested a the White House put forth a package of nominees that could include at a Republican or two and, at least, one woman to take Duke's slot.

He said Yellen could be confirmed by December and Congress could take up the group of other nominees in the December to January range so that the new chairman would have at least five governors on hand.

But Congress is facing two major fiscal deadlines early in the year that could easily derail those plans. Government funding will run out Jan. 15 and the extension of the debt ceiling expires Feb. 7.

Plus, the White House hasn't exactly been aggressive in putting forward Fed nominations.

"Its long surprised me how little interest this administration has shown in filling Fed Board seats," said Mark Calabria, director of financial regulation studies at the Cato Institute.

"It just doesn't appear a priority," he said.

Calabria suggested that there will be increased political pressure to fill some of those seats.

Even Makin conceded that appointing new governors is probably not very high on the White House's list of priorities, especially with fiscal issues dominating the legislative landscape.

The appointments are a "challenge for the president and provide uncertainty for the rest of us."

But Fed experts argue that it is important for the White House to pick up the pace and tackle the nominations as soon as possible.

"I think it would be very beneficial to put it up high on the list of priorities but I don't see it getting much of a mention," Oliner said.

Normally the Fed chairman helps steer the president's choices to ensure there is a balance of expertise and experience on the board.

But Fed experts said they haven't heard whether Bernanke or Yellen are making recommendations.

One name has been floated — Lael Brainard, the under secretary of international affairs at Treasury.

Makin expects that Obama would look at someone who could provide support on regulatory side, such as Daniel Tarullo although there is some question as to whether he'll stay on, but the board will "need some muscle in that area."

There may also be a push for to replace Duke's experience as a small-banker seat.

"There's going to be pressure to have another small-banker on the board," Calabria said.

"But that's a political problem not an economic or administrative issue."

Andrew Busch said Democrats are clearly pushing for governors who would enforce the Dodd-Frank financial law and have a background in regulation.

Others suggest the board could use more bankers and fewer economists.

Regardless, Oliner said the board requires a mixture of people with different areas of expertise and Obama must fill those gaps.

But Makin acknowledged that investors "don't want is a hard-nosed hawk to raise rates. We won't see someone like that."

"All that said, it's the president's call and he's not revealing anything," he said.

Yellen's first FOMC meeting would be in March, where Fed watchers expect that the members will decide to start tapering.

Even if Obama acts quickly, his nominees still have to get through the Senate where there has been "unusual amount of acrimony over the Fed approval process."

While Yellen is expected to be confirmed, Republican Sen. Rand Paul of Kentucky suggested on Friday that he may consider putting a hold on her nomination unless the central bank agrees to a government audit.