Goldman Sachs on the Fed Confirmation Process

Goldman Sachs has put out this backgrounder on the Fed chair confirmation process (via ZeroHedge)

President Obama appears likely to announce his intentions regarding the next chair of the Federal Reserve soon. At this point, we expect the President to nominate Fed Vice Chair Janet Yellen, and believe the announcement will come fairly soon.

The formal announcement could come as soon as next week. Assuming that the President has made his decision, he is likely to want to announce it soon, in our view. Getting an announcement out quickly faces two challenges, though. First, the White House will want to fully "vet" its nominee, which can take time, though in Yellen's case the fact that she went through this process ahead of her nomination in 2010 should limit the amount of time this takes.

Second, the calendar is crowded with other political distractions. An announcement this week seems unlikely because the President is attending meetings around the UN general assembly in NY at the start of this week (September 23-24), and later this week headlines are likely to be dominated by the threat of a government shutdown if Congress does not extend spending authority by Monday, September 30. Assuming that spending authority is extended past September 30 and a shutdown is avoided, an announcement October 1 or 2--early in the weekly news cycle--might make the most sense (it also is worth noting that Yellen has cancelled a speech planned for October 1 hosted by the Economic Club of New York). The President is scheduled to attend meetings in Asia October 6 to 12, so if the announcement is not made next week, it might have to wait until mid-October.

The Senate is apt to begin considering the nomination within a few weeks of the announcement. This will include a public hearing in the Senate Banking Committee, and probably questions in writing for the nominee. Both steps are likely to include substantive discussion of monetary policy.

If we are correct about the timing of the announcement, this would probably imply a hearing in early November, shortly after the debt limit has been raised and the FOMC's October 29-30 meeting. Typically the committee will not vote on the nomination until several weeks after the hearing, while it waits for the nominee to answer additional questions in writing. To be reported to the full Senate for consideration, a simple majority of the committee needs to support the nomination. There are 12 Democrats and 10 Republicans on the Banking Committee.

Two votes will be held on the nomination. First, the Senate Banking Committee will vote, probably in November or December. Assuming Yellen is nominated, she is likely to receive unanimous Democratic support on the committee, which would be sufficient to move the issue to the full Senate, where a vote on confirmation seems unlikely until January 2014. While Yellen's nomination might not receive a great deal of support from Senate Republicans, at this point the likelihood of confirmation appears very high.

The risk of a failed confirmation vote appears very low to us. Assuming Yellen's nomination is reported favorably by the committee to the full Senate, two votes would occur in the Senate. First, the Senate will vote on "cloture" to limit debate on the nomination which requires 60 affirmative votes. (this preemptively avoids a filibuster and has become standard practice on almost all significant matters). The Senate would then vote on the nomination itself, which requires only a simple majority (51 votes). At this stage it appears likely that, at a minimum, a sufficient number of Republicans would lend support on procedural votes to move Yellen's nomination forward, and at least a few seem likely to vote in favor of her confirmation as well.

Yellen's nomination for Vice Chair in 2010 received some Republican support on the Banking Committee, which approved the nomination by a 17-6 vote, though there has been substantial turnover in the committee's Republican membership since then. The Senate confirmed her that year by voice vote, so there is no detailed record of how much support she received from the broader Senate.