WASHINGTON — Two new members have been installed on the Federal Reserve, which has enormous power over Americans' pocketbooks.
Janet Yellen becomes vice chairwoman, the Fed's second-highest ranking official, and Sarah Bloom Raskin is now a governor. Both were sworn into their jobs on Monday. They were tapped by President Barack Obama to fill vacancies on the Fed's seven-member board in Washington.
Before joining the Fed, Yellen was president of the Federal Reserve Bank of San Francisco since 2004. Raskin was Maryland's commissioner of financial regulation. They will help decide how much additional aid the Fed should provide to energize the economy.
The Fed's next meeting is on Nov. 2-3, and many economists believe the Fed will announce at that time a program to buy more government debt. Doing so is aimed at lowering interest rates on mortgages, corporate loans and other debt. The goal: get Americans to boost their spending, which would strengthen the economy and make businesses more inclined to increase hiring.
The additions of Yellen and Raskin are seen as solidifying support for policy positions staked out by Fed Chairman Ben Bernanke.
Bernanke has signaled that the Fed's next likely step to help the economy is buying more government debt. One of the questions Fed officials are wrestling with is how much. An idea gaining favor is for the Fed to start with a modest amount – perhaps $100 billion or less – and then decide on a meeting by meeting basis how much, if any, additional debt should be purchased.
Brian Sack, executive vice president at the Federal Reserve Bank of New York, in a speech Monday suggested such an approach would allow the Fed to better adjust policy depending on how the economy is performing.
During the recession, the Fed ended up buying a total of roughly $1.7 trillion of mortgage securities and debt, as well as government bonds. The Fed announced a huge, upfront commitment to buy the securities. That came to be known as the "shock and awe" approach.
Even with the two new members, the Fed's board in Washington isn't at full strength. It still has one vacant seat.
Obama tapped Peter Diamond, an economist at the Massachusetts Institute of Technology, for that slot. However, the Senate failed to approve his nomination before lawmakers left to campaign for the midterm congressional elections. That leaves Diamond's nomination for when the Senate returns after the November elections. Senate Republicans have objected to what they see as Diamond's limited experience in dissecting the inner workings of the national economy. Diamond is an authority on Social Security, pensions and taxation.
As members of the Federal Reserve Board, Yellen and Raskin are permanent voting members of the Fed's main policymaking group, called the Federal Open Market Committee. The group, which meets eight times a year, makes interest-rate decisions that affect not only the pocketbooks of Americans, but also the investment decisions of companies both large and small. The Fed's interest-rate decisions affect the economy's growth, inflation and employment.