Shelby won’t budge on Federal Reserve nominee

Shelby pointed out, as he had in the past, that the Massachusetts Institute of Technology (MIT) economist has no monetary policy experience, nor any experience managing a financial crisis. Much of Diamond’s economic work has focused on labor markets and pensions.

The senator was open about the fact that he also opposes Diamond’s nomination on political grounds.

Calling the appointment of a Fed governor the “economic equivalent of a Supreme Court nomination,” he rattled off Diamond’s support for the stimulus package, his calls for further stimulus to boost the economy, and his backing of the Fed’s second “quantitative easing” (QE2) program as proof of his liberal ideology.

“In short, Dr. Diamond is an old-fashioned, big government Keynesian,” he said.

He went on to argue the Senate legally cannot confirm Diamond to the Fed because the Federal Reserve Act stipulates that no two Fed governors can be from the same district. Although Diamond is a longtime professor at MIT, the administration maintains he is from Chicago. If confirmed, both Diamond and current Fed Governor Daniel Tarullo would be from Massachusetts, Shelby said.

“Being a Nobel recipient does not mean one is qualified for every conceivable position,” Shelby said.

Diamond also took criticism from freshman Sen. Pat Toomey (R-Pa.), who suggested the Fed’s QE2 program is really just a means of monetizing the government’s debt. The Fed maintains that the program, in which the central bank buys back $600 billion of Treasury bonds, is intended to help boost private lending.

Diamond pushed back on that notion, maintaining that the Fed is not permanently adding large amounts of U.S. debt to its books.

“This is not monetizing the debt, this is a temporary position that will be unwound,” he said, adding that the policy is “an appropriate way to go.”

Toomey was not persuaded, saying it “certainly looks a lot like monetizing to me.”

Diamond also did not shy away from his support of the stimulus package, saying it helped increase employment.

The Fed nominee has had a rocky history with Senate Republicans, particularly Shelby. The Senate rejected his original nomination in August, returning it to the Obama administration without a vote.

The pick was sent back to the Senate, but the 111th Congress concluded before the full Senate voted on the nomination, meaning the administration had to nominate Diamond for a third time in January, after the 112th Congress was sworn in.

For their part, committee Democrats did their best to boost Diamond as a candidate to join the central bank. Committee chairman Tim Johnson (D-S.D.) called Diamond a “distinguished economist.”

Sen. Jack Reed (D-R.I.) called him “superbly qualified,” and presented his nontraditional experience as a plus for the Fed. He called Diamond “a very gifted individual that might challenge some orthodoxies in the Fed.”

Diamond was joined at the hearing by two other administration nominations. Katharine Abraham and Carl Shapiro had both been nominated to join the president’s Council of Economic Advisers. However, they did not face the same level of probing, as Shelby said the president deserved more deference in choosing his own economic advisers than in picking top financial regulators.

Johnson said he wanted the committee to vote on Diamond’s nomination as soon as possible, but members have until Friday to submit written questions for him.

This post updated at 2:21 pm.