As expected, President Obama filled three open slots on the Federal Reserve’s Board of Governors with names that were widely disseminated a couple months ago:

Obama today announced his choice of San Francisco Fed President Janet Yellen to be vice chairman of the Board of Governors under Bernanke. Obama also named Sarah Bloom Raskin, Maryland’s commissioner of financial regulation, and Peter Diamond, an economics professor at the Massachusetts Institute of Technology, to the seven-person board.

The three, who are subject to Senate confirmation, join the board as it considers when to signal an end to its policy of keeping interest rates low for an “extended period.” The Federal Open Market Committee yesterday renewed that pledge, prompting Kansas City Fed President Thomas Hoenig to dissent for a third straight meeting, saying the language limits the Fed’s ability to increase rates “modestly.”

“This will be a group of doves slanted toward job creation and growth, increasing the likelihood of rates staying low for a long time,” said former Atlanta Fed research director Robert Eisenbeis, now chief monetary economist at Cumberland Advisors Inc. in Vineland, New Jersey.

In her statement on the nomination, Janet Yellen in particular mentioned “jobs” and “employment” three times. And Sarah Bloom Raskin is a consumer protection expert. These are rare qualities and statements from Fed board members, but they amount to words without action at the moment. The true test will come when these three get their appointments and if that shifts the balance of power in the Fed. Believe it or not, there’s a school of thought that says Ben Bernanke wants to maximize employment and just needs additional votes at the Fed to further a more expansionist monetary policy. I’m not endorsing that theory, but with these three in place, it would be hard for those same supporters to claim that Bernanke secretly wants to do more.

(I’m aware that Peter Diamond helped create the “Diamond-Orszag” plan on Social Security, which involved benefit cuts. Social Security isn’t necessarily in the purview of the Fed, but it’s worth pointing out.)

David Dayen

David Dayen

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