The closer-than-expected vote in the Senate Banking Committee to recommend Ben Bernanke’s confirmation for a second term as chairman of the Federal Reserve raised at least one new question: What would happen if the full Senate does not go along?
Without controversy, Bernanke would need just a simple majority – 51 votes -- in the Senate to secure another four years at the helm of the Fed, but that hurdle jumps to 60 if Senators Bernie Sanders (I-VT), Jim DeMint (R-SC), Jim Bunning (R-KY) and David Vitter (R-LA) carry out their threats of a filibuster. Those threats make it all but certain Bernanke will need 60 votes to win a second term. A cloture vote to cut off debate requires 60 votes.
Bernanke actually wears three hats: he's a member and chairman of the Federal Reserve’s Board of Governors and Chairman of the Federal Open Market Committee. It is the FOMC which sets monetary policy.
He was appointed simultaneously in January 2006 to a 14-year term as a member of the Board of Governors and a four year term as chairman. It is his chairmanship which is now before the Senate.
If he is not reconfirmed as chairman of the Board of Governors, he would remain a member but Donald Kohn, the Vice Chairman of the Board, would serve as chairman.
The seven members of the Board of Governors are appointed by the President, subject to Senate confirmation. Members may serve only one full term, but a member who has been appointed to complete an unexpired term may be reappointed to a full term. The President designates, and the Senate confirms, two members of the Board to be Chairman and Vice Chairman, for four-year terms. The Federal Reserve act (adopted in 1913) establishes that only one member of the Board may be selected from any one of the 12 Federal Reserve Districts. The President, according to the law, is supposed to select a “fair representation of the financial, agricultural, industrial, and commercial interests and geographical divisions of the country.”
The FOMC consists of the seven members of the Board of Governors and five Federal Reserve bank presidents, four of whom serve as voting members on a pre-determined rotation. The President of the New York Federal Reserve Bank is a permanent member of the FOMC. The rotation takes effect each January 1.
“By statute,” according to the Federal Reserve’s Web site, “the FOMC determines its own organization. Each year at its first meeting, the Committee elects its Chairman and Vice Chairman and selects staff officers to serve the Committee for the coming year. Traditionally, the Chairman of the Board of Governors is elected Chairman and the President of the Federal Reserve Bank of New York is elected Vice Chairman.”
Tradition notwithstanding, there would be nothing to prevent the members of the FOMC from electing Governor Bernanke as chairman of the FOMC. The next scheduled meeting of the FOMC is set for January 26-27 next year, with a slightly revised membership because of the annual rotation.
In 2010, San Francisco’s Janet Yellen, Chicago’s Charles Evans, Atlanta’s Dennis Lockhardt and Richmond’s Jeffrey Lacker will no longer be voting members of the FOMC, replaced by Boston’s Eric Rosengren, Kansas City’s Thomas Hoenig, Cleveland’s Sandra Pianalto and St Louis’ James Bullard.
Their first order of business could be to do what the Senate does not.
Mark Lieberman is the senior economist for the Fox Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.
Follow Mark on Twitter at foxeconomics: http://twitter.com/foxeconomics
Fed holds interest ratesBernanke Defends First Term While Seeking Second
