Obama Eyes Janet Yellen for the Fed's Number Two Slot

The President is considering and seems likely to nominate Janet Yellen, currently the Governor of the San Francisco Federal Reserve and an economist at Berkeley, for the position of Vice Chairman of the Federal Reserve, a post that becomes vacant in June when current term of Donald Kohn expires.

From the New York Times:

The Obama administration has settled on Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, to serve as vice chairwoman of the Federal Reserve, a senior administration official said on Thursday night. Ms. Yellen, 63, who was chairwoman of the White House Council of Economic Advisers and a member of the Fed’s Board of Governors in the Clinton administration, was widely considered to be the front-runner for the position. She would succeed Donald L. Kohn, who intends to retire when his four-year term expires in June.

Ms. Yellen is viewed by some economists as relatively more inclined to keep interest rates low to stimulate economic growth and reduce the high rate of joblessness. The Fed now faces a tricky balancing act of trying to nudge rates up from historic lows while not choking off a recovery.

Two other seats on the Fed’s seven-member board also need to be filled. The President did nominate one other Fed Governor, Daniel K. Tarullo, who took office in January 2009.

Janet Yellen is an excellent choice. She was appointed to the San Francisco post in 2004 and had previously served as chair of the Council of Economic Advisers from 1997 to 1999 under President Bill Clinton. Significantly, she has published widely on a variety of macroeconomic topics and is an authority on unemployment.

[UPDATE] The Obama Administration today announced its nominees to the Federal Reserve Board of Governors. Two are economists and another is a lawyer with expertise on financial regulatory environment. The three nominees are Janet L. Yellen, president of the Federal Reserve Bank of San Francisco, who is the top choice for vice chairwoman, and Peter A. Diamond, an economist from MIT who is an authority on Social Security, pensions and taxation. The lawyer, Sarah Bloom Raskin, is the Maryland commissioner of financial regulation. More at the New York Times.

Revisions to Jobs Report Show a Further Erosion in US Labor Market

In the nation's two most populous states, three new reports point to a continuing weakness in the labor market. In the Lone Star State, The Texas Workforce Commission (TWC) is expected to release its monthly jobs report for January that will revise upwards the jobs losses. Indeed, Federal Reserve Bank of Dallas recently released its own benchmark report which found that Texas had lost a total of 329,000 payroll jobs in 2009 or 53,000 more than 276,000 reported by the Commerce Department.

Much of the weakness in the Texas job picture is in the Dallas MSA, the state's second largest. The Dallas area lost nearly 83,000 jobs between December 2008 and December 2009, according to the Dallas Fed. That's nearly double the 42,000 or so local job losses the TWC estimated in January for the same period.

Overall, the Texas job market is performing better than the national one. Still, the state's unemployment rate rose to 8.3 percent in December, up from 8 percent in November.

In nation's most populous state, the situation is even bleaker. The San Jose Mercury News reports that the California lost far more jobs last year than the state initially reported. According to an estimate from the state Employment Development Department, California employers shed 871,000 jobs in 2009. If that estimate holds up when final revisions are released this month, California's job losses would be far more grim than first believed. The agency reported as recently as Jan. 22 that California employers chopped 579,000 jobs from payrolls in 2009. In short, California lost 292,000 more jobs than first reported.

California's unemployment rate stood at 10.1 percent in January 2009 but climbed to over 12.1 percent over the course of the year. The latest report from the Bureau of Labor Statistics showed the unemployment rate in the Golden State at 12.4 percent.

Donald Kohn to Resign from the Federal Reserve

The Board of Governors of the Federal Reserve has announced that Vice Chairman of the Federal Reserve Donald L. Kohn has submitted his intent to resign Monday as a member of the Board of Governors of the Federal Reserve System, effective at the expiration of his term on June 23, 2010.

Kohn's departure brings to three the number of vacancies on the Federal Reserve’s seven-member board of governors. The opportunity now exists for the Obama Administration to significantly alter the composition of the Federal Reserve which serves as the nation's central bank. With these appointments the President can significantly have an imprint on the direction of US monetary policy over the next decade.

The Federal Reserve Raises Its Discount Rate

The Federal Reserve, the Central Bank of the United States, has raised its discount rate by a quarter of a percentage point, to 0.75 percent from 0.50 percent, effective tomorrow Friday, February 19, 2010. The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility - the discount window. From the Federal Reserve's press release:

The Federal Reserve Board on Thursday announced that in light of continued improvement in financial market conditions it had unanimously approved several modifications to the terms of its discount window lending programs.

Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC). At that meeting, the Committee left its target range for the federal funds rate at 0 to 1/4 percent and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19.

There's more...

Bernanke confirmed for second term as Fed chairman

The Senate voted to confirm Ben Bernanke as chairman of the Federal Reserve today, but it was hardly a ringing endorsement:

The 70 to 30 vote was the thinnest approval ever extended to a chairman in the central bank’s 96-year history.

The confirmation was a victory for President Obama, who had called Mr. Bernanke an architect of the recovery, but also signaled the extent to which the Fed, once little known to the public, has become the object of populist outrage over high unemployment and Wall Street bailouts.

In several hours of debate, senators said the Fed had abetted, then ignored, the housing and credit bubbles and allowed banks to keep dangerously low capital reserves and to make reckless lending decisions that ruined consumers. Some even blamed Mr. Bernanke for the falling dollar and questioned his commitment to free enterprise.

In contrast, Mr. Bernanke’s supporters were muted. Like a mantra, they said that the Fed had made mistakes but that Mr. Bernanke had helped save the economy from a far worse recession.

Eleven Democrats, 18 Republicans and independent Bernie Sanders voted against confirming Bernanke (roll call here).

Senators of both parties who opposed Bernanke said his monetary policy and poor oversight contributed to the financial meltdown of 2008. Various Democrats who voted against Bernanke said he had been too beholden to Wall Street interests. Senator Chuck Grassley of Iowa surprised me this week by claiming Bernanke wasn't doing enough to prevent high inflation from returning. I would think that in this economic environment, with high unemployment and declining wages, deflation would be more of a concern than high inflation.

I still think it was a mistake for Obama to nominate Bernanke for another term, but let's hope the Fed chairman improves on the job.

UPDATE: MIT economist Simon Johnson considers Bernanke's reappointment and confirmation "a colossal failure of governance. Worth a read.

SECOND UPDATE: I should have mentioned that seven senators voted for cloture (allowing the Senate to proceed to consider Bernanke's nomination) before voting against confirming him. Here is the roll call on the cloture vote. The senators who voted for cloture but against Bernanke are Democrats Tom Harkin (IA), Barbara Boxer (CA), Byron Dorgan (ND), Al Franken (MN), Ted Kaufman (DE), and Sheldon Whitehouse (RI), along with Republican George LeMieux (FL).

Diaries

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