More on Fed Vacancies

March 6, 2010

With soon-to-be three vacancies at the Fed and one already filled, President Obama could potentially fill a majority of seats (four of seven) on the Fed’s Board of Governors with his own appointees relatively early in his administration. (Five of seven if you count Bernanke. See previous post.) Members of the Fed Board serve staggered, 14-year terms, with one seat becoming available every two years. By design of the Federal Reserve Act, in a single term the President will make only two “scheduled” appointments to the Board, and a two-term President will have barely appointed a majority of Board members by the time he leaves office. These are some of the characteristic ways of making an “independent” agency independent—ways of limiting presidential control and influence over the board members. So it might seem that the opportunity the administration now has to revamp monetary policy through Fed appointments would be historic, possibly unprecedented. It might seem that way, but it isn’t.

Marriner S. Eccles Federal Reserve Board Building

In a review of appointments made to 12 independent regulatory commissions by presidents from Warren G. Harding through the George W. Bush, Neal Devins and David Lewis found that presidents have nearly always been able to appoint a majority (pdf) to each commission—ninety percent of the time. On average, they have appointed majorities to each commission within the first 26 months of their term. And they have achieved majorities for their party—adding to the ranks of commissioners appointed by previous presidents of the new president’s party—in just ten months.

The Devins and Lewis study did not include the Federal Reserve, but the authors note that only twice did presidents fail to achieve a majority on the Fed Board (Kennedy and Nixon).

The circumstances under which Obama took office have combined to accelerate vacancies. When a new president succeeds a president of the other party, as Obama has, there is typically a spike in vacancies, mostly due to resignations of partisans of the new president. Also vacancies typically increase in times of unified government, where one party controls both the White House and the Senate, as Democrats do now. The magnitude of both factors—party change in the White House and unified government—is proportional to the degree of polarization between the parties. And yep, we’ve got that, too.

So, if President Obama were to push through three Fed nominees this year—unlikely given election-year politics and the clogged drain that is the Senate confirmation process—he might be slightly ahead of the average presidential timeline, but the occasion is not at all unprecedented.

Still, unprecedented or not, it would be a shame to waste the opportunity. Those three seats at the Fed should be the first three items on the President’s jobs agenda.

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