Richard Clarida, a top executive of Pacific Investment Management Co, and Michelle Bowman, a banking regulator from Kansas, will start their perilous journey to the Federal Reserve Tuesday with testimony to the Senate Banking Committee.
Even though analysts see no problems with President Donald Trump’s nominations to the central bank, the days of smooth sailing to the Fed and other regulatory positions is ancient history, said Brian Gardner, managing director at Keefe Bruyette & Woods.
“The way the Senate used to work doesn’t apply anymore. Members are more frequently using nominations to get policy changes or get retaliation if they feel they have been slighted in the past,” he said.
Gardner thinks the two nominees may not join the Fed until December or early next year given the gridlock in the Senate.
Getting though the Senate has been a particular minefield for Fed nominees.
Most recently, Marvin Goodfriend, a widely respected conservative economist at Carnegie Mellon University, who was tapped by Trump to join the central bank last November, has seen his nomination stall on the Senate floor since February.
After a rocky confirmation hearing, Goodfriend has yet to attract any support from Democrats. And even more damaging, Sen Rand Paul, a Republican of Kentucky, has said he would vote against Goodfriend. In the narrowly divided Senate, that could doom the nomination.
Two of President Obama’s last Fed nominees – former community banker Allan Landon and Kathryn Dominguez, an economist at the University of Michigan – never even got confirmation hearings.
The Fed is likely to push the Senate to act on the nominations. At the moment, there are four vacancies on the seven-member board.
Clarida, who is nominated for the Fed’s second ranking job, is a Ph.D. economist and former Treasury official with both market and academic credentials. He is managing director at Pimco and a professor at Columbia University.
Clarida has been a proponent of the view that interest rates are likely to remain lower than in previous business cycles because of long-term factors like the aging U.S. population and lower productivity.
Julia Coronado, president of Macropolicy Perspectives LLC in New York, said that Clarida’s thinking is “very much in line” with the Fed’s current policy to continue to gradually raise short-term interest rates until rates are near “neutral,” neither boosting or restraining growth. It is this neutral level, which used to be around 4%-4.5% that is now closer to 2.5%-3%, she said.
Bowman, the Kansas City bank commissioner, will fill the community banker slot on the Fed board that is now required by Congress . She is a fifth-generation banker and the former vice president at her family’s Farmers & Drovers Bank in Council Grove, Kan. Finding bankers willing to take the positions has been difficult as Fed ethics rules require governors to divest holdings in their firms.