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Shelby Blocks Non-Controversial Fed Nominee

Today, the Senate went on its August recess, without passing the small business bill, the unemployment extension for 99ers (which is still under consideration by the Finance Committee) or many other provisions. It also failed to get to the nomination of Peter Diamond, a lauded economist named to the Federal Reserve Board. In fact, Senate Republicans kicked Diamond’s nomination back to the White House, an unprecedented event.

How? Bloomberg explains:

Under Senate rules, all nominations that aren’t completed before a lengthy recess go back to the White House and have to be resubmitted unless the Senate unanimously agrees to hold onto them and act later, Stewart said. Routinely, the Senate does agree to retain the nominations. If a single senator objects, the name goes back to the president’s office. In Diamond’s case, at least one senator did that.

Who objected? Sen. Richard Shelby (R-Ala.), who argued, “I do not believe he’s ready to be a member of the Federal Reserve Board. I do not believe that the current environment of uncertainty would benefit from monetary policy decisions made by board members who are learning on the job.”

Is he unqualified? Paul Krugman, Nobel laureate in economics, says no:

[O]ne of the hot topics is whether the apparent shift in the Beveridge curve signals a rise in structural unemployment — and Diamond wrote the seminal paper on the whole subject … Diamond is exactly the man we need — which, given the way things have been going lately, probably means he won’t get confirmed.

So do many others. (The Economist notes that Diamond was Federal Reserve Chairman Ben Bernanke’s professor at one point.) And what will happen to the Fed, now that the Senate has failed to move? It will be down to four Board members come Sept. 1, making it very hard to make policy, according to the experts:

“It’s very hard for the Federal Reserve to operate with only five people,” said former Fed Governor H. Robert Heller, who served on the board from 1986 to 1989. “Four is the minimum for a quorum. To have the Fed at full strength with seven persons there is very important.”

The good news? The Senate finally got around to approving the United States’ ambassador to Iraq yesterday.

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