Right now there are two unfilled positions on the seven member Federal Reserve Board. If nothing is done to fill those positions, the number will increase to three in June of this year when Governor and Vice-Chairman Don Kohn retires.
One open Board position should not go unfilled for this long, two is worse -- two positions have been open since president Obama took office -- and three open slots should not be allowed to happen.
It's not exactly clear what has taken the administration so long to propose people to fill the open Board seats except fear of obstructionism from the other side. But there is a very legitimate argument that filling the open positions is important if we want to maximize our chances of recovering from the economic downturn, so obstructionism could backfire in this instance. The administration should have tried to fill the positions in any case, obstructionism or not, given the importance of doing all we can to recover from the recession and the importance of trying to prevent this from happening again (there are many problems that the Fed needs to resolve, and having additional Board members to serve in leadership roles on initiatives to address the many and varied issues the Fed faces could be very helpful right now).
For whatever reason, the administration has not taken full advantage of its chance to shape monetary policy during the downturn. The number of open positions is a large fraction of the Federal Reserve Board, and it skews the balance of power on the Federal Open Market Committee (where monetary policy is decided) toward the regional banks. Many of the regional bank presidents are inflation hawks, more so than the Governors, so this may have affected the Fed's policy choices.
By filling the open positions, president Obama could have given the current Board a better chance of dealing with the many complex problems it needs to address, and it could have shaped the types of policies that have been enacted. For example, many economists have been urging the Fed to be more aggressive in its efforts to stimulate output and employment. Assuming that the administration shares this view, appointing two Board members as soon as they were able to after inauguration could have tilted the policies currently in place in this direction.
Finally, there has been some speculation recently about potential candidates for the unfilled positions, and the list is skewed toward academics who are specialists in the conduct of monetary policy. The Board does need academic specialists. But the Board also needs experts in financial markets, people with a thorough understanding of all facets of financial markets and the assets that are traded on them, and it needs experts in financial market regulation as well. Those areas are already fairly well covered by Governors Warsh, Duke, and Tarullo, while at present the only academic on the Board is Ben Bernanke.
I still wonder if the Board has sufficient expertise in financial markets and institutions, so perhaps one of the three open positions could be devoted to filling needs in that area. However, Ben Bernanke could use the help of more macroeconomists on the Board, and I'd like to see the other two of the positions, if not all three, go to experts in monetary policy. There was a time I might have pushed harder for all three positions to go to academic experts, but the financial market crash has highlighted the need for a broad range of expertise on the Board.