Birds of a Feather: New Doves for the Fed?

Reported by Steve Liesman, written by Michelle Lodge
Federal Reserve

Heard the one about the two economists and a lawyer? But, maybe the more apt question is, heard the one about three doves, or about two doves and a sometimes hawk?

It sounds like the beginning of a joke, but it’s actually what’s in store for the Federal Board of Governors when President Obama formally announces three people in those professions and with those ideologies to fill vacancies on the Fed.

The nominees' confirmations are subject to Senate approval.

Depending on how you look at it, nominee Janet Yellen, could be one of the doves, or a hawk. Yellen, the current San Francisco Fed president, who is slated to fill the vice-chairman slot that Donald Kohn is vacating, has been criticized for being a dove.

The remaining vacancies on the central bank are doves, economist Peter Diamond, author and professor at MIT, and lawyer Sarah Bloom Raskin, Maryland's commissioner of financial regulation.

Diamond earns his dove wings as an "unemployment targeter," and Raskin, who previously worked on Wall Street, earns hers by being an outspoken critic of Wall Street.

The Fed presidents have been unusually vocal in recent years, in part because some in their ranks are more hawkish than the Federal Reserve’s Open Market Committee.

Yellen's record shifts her to the hawk category at times: She has voted for rate increases 20 times in her long career and has been increasingly bullish on the economy. She has projected a 3.5 percent growth rate in 2010 and 4.5 percent rate for 2011.

Yet, Yellen also expects a low inflation rate and doesn’t forsee the slack being absorbed in the economy until 2013.

In a prepared statement, Yellen said, "I am strongly committed to pursuing the dual goals that Congress has assigned us, maximum employment and price stability. If confirmed, I will work to ensure that policy promotes job creation and keeps inflation in check."

With these nominations, which would put the board at full strength, it could provide more influence for the Fed in Washington and a more powerful Chairman Ben Bernanke, because governors tend to back the chairman. It also gives President Obama the chance to put his stamp on the nation's monetary policy for up to 14 years.

Obama named Daniel Tarullo a member of the Federal Reserve Board in January 2009.

If the financial reform bill now being debated in Congress eventually passes, the Fed's ranks could grow: It calls for a second vice-chairman who would be in charge of banking supervision.