Fed pick is likely to be blocked again

Mar 09 2011

Wash. Post:

A Nobel Prize isn't enough to change Sen. Richard C. Shelby's mind about Peter Diamond.  The Alabama lawmaker said Tuesday that Diamond is still not qualified to sit on the Federal Reserve Board.

Shelby, the highest-ranking Republican on the Senate banking committee, said he plans to oppose the third nomination of the Massachusetts Institute of Technology professor to the Fed. The opposition, which he stated at the panel's hearing on the nomination, raises the likelihood that President Obama's choice for the board will be blocked again.

The banking panel twice approved Diamond's nomination last year along partisan lines. He was never confirmed by the full Senate because Democrats lacked Republican support.

In October, Diamond and two other economists won a shared Nobel Prize in economics for their work explaining why unemployment can remain high despite large numbers of job openings - a trend that is playing out now.

Obama nominated Diamond for the third time in January.

Shelby on Tuesday called the Nobel Prize a major honor.

"Yet, being a Nobel recipient does not mean one is qualified for every conceivable position," the lawmaker said at the hearing, saying Diamond lacks hands-on experience regulating banks and managing financial crises.

Committee Chairman Tim Johnson (D-S.D.) wants the panel to vote on the nomination soon. But no date has been set.

Shelby disagrees with Diamond over policy matters, including the nominee's support for action by the Fed and Congress to stimulate the economy and lower the unemployment rate.

"In short, Dr. Diamond is an old-fashioned, big government Keynesian," Shelby said.

Sen. Patrick J. Toomey (R-Pa.) voiced concerns at the hearing that rising prices for food, oil and other commodities could lead to lead to an inflation problem in the United States.

Diamond said he doubts that would happen. Consumers aren't spending at a rate that would trigger inflation, he said. And workers have little bargaining power to demand higher wages, because the jobs market is healing slowly.

Diamond said the Fed has the tools to slow inflation once the economy is strong again. At that time, the Fed will take steps to soak up the money it pumped into the economy during the recession. It also will increase interest rates. Most economists think that process will start early next year.