August 7, 2022

With Rebuke of Senate Republicans, Fed Nominee Withdraws

Mr. Diamond, a professor of economics at the Massachusetts Institute of Technology and a Nobel Prize laureate for his work on labor markets, had waited more than a year for a Senate vote, a step that Republicans refused to allow.

“We should all worry about how distorted the confirmation process has become, and how little understanding of monetary policy there is among some of those responsible for its Congressional oversight,” Mr. Diamond wrote Monday in an Op-Ed article in The New York Times that announced his decision.

Mr. Diamond criticized Senate Republicans for treating his expertise in labor economics as irrelevant to decisions about monetary policy. “Understanding the labor market — and the process by which workers and jobs come together and separate — is critical to devising an effective monetary policy,” he wrote.

While the timing was unanticipated, the failure of the nomination had seemed inevitable. Senator Richard C. Shelby, the senior Republican on the Banking Committee, had said repeatedly that Mr. Diamond lacked the necessary qualifications.

“It is my hope that President Obama will now nominate someone capable of garnering bipartisan support in the Senate,” Mr. Shelby, who is from Alabama, said in a statement Monday. “It would be my hope that the president will not seek to pack the Fed with those who will use the institution to finance his profligate spending and agenda.”

Mr. Shelby added that he had great respect for Mr. Diamond and wished him the best.

The White House issued a statement Monday promising a new nominee “as soon as possible.”

“We are deeply disappointed that this candidate, who had initially seen bipartisan support, fell victim to partisan obstructionism at this important time for our economic recovery,” said Jay Carney, White House spokesman.

The withdrawal leaves two empty seats on the Fed’s seven-member board, which sets monetary policy together with selected presidents of the Fed’s regional banks. The position of vice chairman for supervision, created last year, also is vacant.

The empty seats are part of a broader void atop the agencies charged with overhauling and improving financial regulation in the wake of the 2008 crisis.

President Obama has not nominated a new head for the Comptroller of the Currency, which oversees national banks, nor a new chairman for the Federal Deposit Insurance Corporation, which insures bank deposits and cleans up failed banks. And Republicans have said they will not approve any nominee to lead the newest agency, the Consumer Financial Protection Bureau. So far the White House has not sought to test their intransigence.

Mr. Diamond’s nomination became a proxy for a broader fight between the White House and Congressional Republicans over the government’s role in the economy. Mr. Diamond publicly supported an ongoing Fed program to stimulate growth by purchasing $600 billion in Treasury securities. Mr. Shelby and other Republicans described the program as a backdoor method of lending the government more money.

In his opinion piece Monday, Mr. Diamond echoed a position the White House often has taken: Spending is not good or bad. It just depends what you are buying.

“In reality, we need more spending on some programs and less spending on others, and we need more good regulations and fewer bad ones,” Mr. Diamond wrote. “Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better. I had hoped to bring some of my own expertise and experience to the Fed. Now I hope someone else can.”

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