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The failure of the nomination of the MIT professor, an expert on pensions and behavioral economics, can also be an indication of deep partisan divides over economic problems on Capitol Hill.

Disagreement more than spending cuts has stalemated efforts to raise the U.S. debt ceiling, raising the possibility, nevertheless remote, of a U.S. debt default.

“It’s a pity because Diamond’s work on labor markets could be of significance for the committee,” mentioned Michael Gapen, a former Fed economist now at Barclays Capital. “This was a situation of politics winning out over pragmatism.”

The shaky U.S. economic system — in which unemployment is over 9 percent two years following the formal end of the recession — can be a major liability for President Barack Obama as he prepares to seek reelection in 2012.

Data on Friday indicated the economy may possibly be in for a lengthy period of soft growth soon after employers hired the fewest quantity of workers in eight months in May well.

In his report, Diamond bemoaned the rise of political pressures on central bank decision-making.

“We ought to all be concerned about how distorted the confirmation approach has become, and how little understanding of monetary policy there is amongst a few of those accountable for its Congressional oversight,” he mentioned.

“We must preserve the independence of the Fed from efforts to politicize monetary policy and to limit the Fed’s potential to regulate monetary firms.”

Among names which have been talked about for Fed vacancies in the current past are Raphael Bostic, an economist in the Department of Housing and Urban Advancement who has worked in the Fed and William Spriggs an economist in the Labor Department who also worked on Capitol Hill.