US Senate approves Kohn to be fed vice chairman

WASHINGTON - The US Senate today approved the nomination of Federal Reserve Board Governor Donald Kohn, a monetary policy veteran, to be vice chairman at the central bank.

The Senate approved the nomination on a voice vote.

Kohn, who has served on the central bank's board since August 2002, has spent his entire 36-year career within the Fed system and is considered a safe pair of hands by analysts.

The Senate vote clears him to serve a four-year term as the No. 2 official at the US central bank. His separate term as a member of the Fed's board runs through January 2016.

Sen. Jim Bunning, a Kentucky Republican who is a member of Senate's banking and budget committees, announced his opposition to Kohn's confirmation saying, "I do not think he has been an independent voice at the Fed."

Bunning, who was the lone senator to talk about Kohn on the Senate floor before he was approved, added he was "convinced" Kohn would back another increase in interest rates later this month.

"The Fed has a bad record of overshooting and I'm afraid they will overshoot this time" in its efforts to battle inflation concerns with rate hikes, Bunning said.

Kohn was a top lieutenant to former Fed Chairman Alan Greenspan, serving as the central bank's top staffer on monetary policy issues before being elevated to his current policy-making position.

At a hearing on his nomination earlier this month, Kohn told the Senate Banking Committee that recent elevated inflation readings had raised a "warning flag" that the central bank could not ignore.

"The economy is slowing down and that will help to dampen inflation pressures, but at the same time, there are some danger signs out there that we need to be quite attentive to," he said.

Financial markets, which expect a 17th straight increase in interest rates when Fed officials gather June 28-29, consider Kohn among the most influential officials at the central bank.

The 63-year-old Fed veteran pursues policy through the risk-management prism Greenspan employed, in which unlikely events are given greater weight in deliberations if the fallout, should they occur, are particularly dire.

Like Greenspan, Kohn has voiced opposition to the adoption of numerical inflation targets for US monetary policy -- but he has not entirely closed the door to announcing a numerical inflation goal, a step Fed Chairman Ben Bernanke thinks could make it easier to keep prices in check.

"We've seen an illustration in the last couple months in which .. inflation expectations have come a little bit unhinged," Kohn said at a conference last week.

"We'll begin to talk about whether there are some ways to better anchor expectations without putting ourself in a straitjacket." Bernanke has tapped Kohn to lead a panel charged with framing discussions on communications issues among Fed policy-makers.

Kohn began his career at the Kansas City Federal Reserve Bank in 1970, moving to the Fed board's research staff in 1975, where he served in a number of positions before being elevated to the head of the Monetary Affairs Division in 1987.

Kohn, a political independent, is married and has two children. He has a bachelor's degree from the College of Wooster and a doctorate from the University of Michigan.

He will succeed Roger Ferguson, who stepped down as vice chairman in late April.

- REUTERS