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Fed vacancies could delay policy action, lead to overworked committees

Federal Reserve Chair Janet Yellen's upcoming exit from the Fed would add a fourth vacancy to the Board of Governors, giving President Donald Trump a greater chance to shape the direction of the U.S. central bank.

But it also adds more uncertainty given Trump's slow approach so far in filling what could soon become a three-member body for the first time since 1936, potentially hampering efforts to ease some banking regulations and fulfilling some of the Fed's key tasks, Fed observers say.

"You can't execute on all of that unless you have those positions filled," said Diane Swonk, founder of the Chicago-based DS Economics.

Yellen's exit will occur once her successor, slated to be current Fed Governor Jerome Powell, takes over as chair. That could leave the Board of Governors with four of its seven seats unfilled.

One of Trump's appointees, Randal Quarles, is already on the Board of Governors after getting confirmed by the Senate. Quarles is the vice chairman of supervision, a new post under the Dodd-Frank law.

Trump has yet to appoint a vice chair of the board and can fill out its other vacancies.

Aaron Klein, policy director at the Brookings Institution's Center on Regulation and Markets, worried Trump would opt against nominating new Fed board members and that multiple vacancies on the board would continue to become a norm.

Klein said having fewer Fed governors means the critical work that happens in board committees, which oversee topics like bank supervision and payment systems, is spread among fewer people. And that, he said, could further delay Fed action on key issues like modernizing the country's payment systems.

"There's a reason why there's seven Federal Reserve board governors," he said. "They have a lot of jobs to do."

Though Powell is largely expected to keep the Fed's direction on monetary policy on track, he has been more open to relaxing some regulations under the Dodd-Frank Act. He has also suggested that public rules and benchmarks to evaluate the Fed's performance could be helpful, as long as they don't automatically tie the Fed's hands in policymaking decisions.

Rep. Andy Barr, who chairs the House's Subcommittee on Monetary Policy and Trade, said at a Cato Institute conference this month that Powell's nomination and the Board of Governors vacancies are a major opportunity.

"We are excited about what this prospective change in personnel can bring in terms of a more reliable policy for American economic opportunities," the Kentucky Republican said, noting that Congress is also working on numerous changes for the Fed.

The Fed has continually had to deal with vacant seats, but the board hasn’t dropped down to three or fewer members since its current structure began in 1936, according to a document the Fed prepared this fall while tweaking its quorum requirements.

Some have speculated on possible logistical difficulties if the Fed board dwindles down to three. For instance: Would a conversation between Powell and another board member count as a quorum and an official government meeting?

The Fed board, though, changed its quorum requirement last month for times when it has three or fewer members. If that’s the case, a quorum would be any time all of the board's members are present.

In its explanation of the change, the board said "substantial vacancies present administrative and logistical challenges that make it difficult to conduct routine business and efficiently manage operations."

"This revised definition will facilitate the Board's ability to continue to function efficiently during periods of substantial vacancies on the Board," the board's explanation of the change says.

Mark Olson, a former Board of Governors member who is now chairman of Treliant Risk Advisors, said senior Trump administration officials understand that the Fed's work can be impeded with fewer members so they'll begin picking nominees to the board soon.

But until then, he said, the existing members will be so busy they will "be like one-armed paper hangers."