Harvard economist to be nominated to Fed

Jeremy Stein once served in Treasury

Harvard economist Jeremy Stein is one of the president’s picks for the Federal Reserve board.
Harvard economist Jeremy Stein is one of the president’s picks for the Federal Reserve Board.

Jeremy Stein, a Harvard University economist whose research into the financial markets’ flaws and calls for tougher banking regulations have attracted national attention, will be nominated to be a Federal Reserve governor, President Obama said yesterday.

Stein, 51, has taught at Harvard since 2000. He served in the Obama administration as a senior adviser for five months in 2009 to the Treasury secretary.

Also to be nominated is Jerome H. “Jay’’ Powell, who served in the Treasury Department under President George H.W. Bush.


Stein was in 2008 a strong advocate of governmental intervention to help banks survive the financial crisis. But he has also criticized some aspects of the government’s bailout program, such as allowing banks to pay their stockholders dividends before they repay the government.

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Stein has studied and written about many of the issues the Fed has been facing since the financial crisis, including the role and extent of regulation, financial stability, and monetary policy. For instance, he recently urged regulators to shorten the deadline for banks to raise more capital to ensure they can weather any future financial storms.

“It is hard to imagine an academic whose research is more relevant for a position as a Fed governor,’’ said David Scharfstein, a Harvard Business School professor in finance and banking. “The breadth and depth of Jeremy’s research record is simply extraordinary.’’

Stein and Powell would, if confirmed by the Senate, fill two vacancies on the Fed’s seven-member board of governors.

Powell, currently a visiting scholar at the Bipartisan Policy Center in Washington, has experience on Wall Street as a lawyer and in private equity and investment banking. Though a self-described fiscal conservative, Powell was critical earlier this year of Republicans who were unwilling to raise the nation’s debt ceiling to avoid a potential default or drastic budget cuts.


By pairing an economist with a Wall Street veteran who served under a Republican, Obama appears to be trying to increase the chances of his nominees winning Senate confirmation.

One of Obama’s previous nominees for a Fed seat, Peter A. Diamond, withdrew his name in July after repeatedly facing opposition from Senate Republicans. Diamond is a Massachusetts Institute of Technology economist and a Nobel Prize recipient.

Diamond’s withdrawal exemplified the trouble Obama has had pushing high-level nominees through the Senate confirmation process. Democrats control the Senate, but Republicans command enough seats to block nominees with filibusters. Republicans, for instance, have vowed to block anyone Obama nominates to run the Consumer Financial Protection Bureau unless Democrats agree to revamp the new agency.

“It may be an astute move by the president - because of the difficulties he has had confirming nominees - to offer what appears to be an olive branch to the Republicans,’’ said Carl Tobias, a University of Richmond law professor who has voiced concern about the number of judicial nominees blocked by Republicans. “I am reasonably optimistic it may work, but we’ll see.’’

Many congressional offices were closed yesterday for the holidays. Senator Richard Shelby, the ranking Republican on the Senate Banking Committee, who led the opposition against Diamond, could not be reached for comment. The Senate minority leader, Mitch McConnell, did not return a call seeking comment.


The nominations come as Federal Reserve board members debate how much more to do to try to stimulate the economy and lower the unemployment rate. The Fed has pledged to keep interest rates near zero for the near term and has tried other steps to pump money into the economy. But job growth has remained surprisingly sluggish since the recession ended, which technically was two years ago.

Some economic specialists say the Fed should be more aggressive; others worry the central bank has meddled in the economy too much, instead of focusing on taming inflation.

The Fed is also the primary regulator of major banks.

In a statement, Obama said he was grateful Stein and Powell agreed to be nominated.

“Their distinguished backgrounds and experience coupled with their impressive knowledge of economic and monetary policy make them tremendously qualified to serve in these important roles,’’ he said.

Stein referred requests for an interview to the White House, which said it is “standard policy that nominees don’t do interviews as they await confirmation.’’

Other economists who have worked with Stein praised his work. “He is one of the most brilliant economists of his generation,’’ said Anil Kashyap, at the University of Chicago. He has collaborated with Stein for 20 years and considers him a close friend.

Kashyap, who met Stein at MIT 25 years ago, called him a fast learner with “an uncanny ability to simplify complicated arguments.’’

A Chicago native, Stein earned his doctorate in economics at MIT in 1986 and taught there from 1990 to 2000 before moving to Harvard.

Colleagues describe Stein as friendly, down-to-earth, and a fan of boxing and basketball. He has posted a formal portrait of himself dressed in a gray suit and a colorful tie on his faculty Web page, as well as a casual shot in which he stands in a garden, sporting a blue polo shirt. He is a popular professor at Harvard, where he teaches finance.

Richard Green, an economist at the University of Southern California, said he has never met Stein but has admired his work since Stein wrote about the instability of housing prices in 1995.

Since then, Green said, Stein has produced interesting papers exploring imperfections in the financial markets. He thought Stein might be best known among economists for a paper on investors’ tendency to copy what other investors are doing - “herd behavior.’’

“He’s not an ideologue,’’ Green said. “He is someone who looks at how investors actually behave and does it in a careful way.’’

Todd Wallack can be reached at Follow him on Twitter @twallack.