The Senate Banking Committee approved the nomination of Susan Schmidt Bies and Mark Olson to the Federal Reserve Board, both nominated this summer by President Bush. The full Senate needs to complete the process by voting on the confirmation, which they plan to do in the next couple of weeks.

Mark Olson is a former president of the American Bankers Association. More recently, he was a partner at Ernst & Young LLP and had been president of Security State Bank in Fergus Falls, Minnesota.

Susan Schmidt Bies has a doctorate in economics and has taught college economic courses for several years. Most recently, she was an executive vice president in charge of risk management for First Tennessee National Corp. in Memphis.

Bies and Olson are considered "loyal" to President Bush since they owe their appointment to him. At least, that's the political rhetoric. Governors tend to become central bankers very quickly and find that it is in the best interest of the country to maintain the Fed's twin goals of promoting price stability and economic growth. It isn't unusual to see "party lines" crossed and governors vote for the economy instead of political loyalty. In any case, new governors tend to look to the Chairman of the Fed as their "guiding light" particularly in their beginning years.

With Bies and Olson, the Fed will finally be complete for the first time in nearly four years -- but not for long. Fed governor Ed Kelley announced his retirement last summer but is waiting out the confirmation process. In addition to Kelley's resignation, Laurence Meyer's term expires on January 31, 2002. That means that the Board will once again have two vacancies in early 2002 unless Meyer is offered and accepts a second term. And two-fifths of the Board will be quite inexperienced in monetary policy.

The Federal Reserve Act of 1913 allotted seven positions for the Board of Governors including a chair and a vice-chair. Fourteen-year terms are staggered so that one governor's position expires every two years, trying to ensure that members with experience make up the bulk of the board. But most Fed governors don't retain their position for the entire 14-year term. New appointees typically fill unexpired terms of others who have resigned. One is hard-pressed to find a governor who has served his or her entire 14-year term -- but there are exceptions. Edward Kelley was appointed in 1987 to fill an unexpired term and was reappointed in 1990 to a full term. Alan Greenspan was also appointed in 1987 and reappointed in 1992.

The Fed has been operating with a less-than-complete board since Janet Yellen left to head President Clinton's Council of Economic Advisors in 1997. It isn't unusual to have one vacancy but then Clinton asked Alice Rivlin in mid-1999 to chair a board that monitored the financial condition of the city of Washington D.C. Clinton did nominate a Wall Street banker to fill one vacancy, but due to political wrangling in the Senate the choice was never approved.

The bottom line
Political wrangling seemed to be the major reason that the Clinton Administration never did get to fill the vacancies on the Federal Reserve Board. The board will have the full seven members for a short period of time when the Senate confirms the two newest additions. However, two vacancies will quickly develop as one long-serving governor resigns and another finds his term expired. The current Bush administration will do well to quickly find replacements. Greenspan's term doesn't expire until June 2004, but it would do the Fed good to have an experienced board by that time. It is unlikely that President Bush would re-appoint Greenspan, who at that point will be 78 years old.

Evelina M. Tainer, Chief Economist, Econoday