RSS FeedHelp Wanted at the Fed?
Marriner S. Eccles Federal Reserve Board Building
Throughout Barack Obama’s presidency there have been two vacant seats on the Federal Reserve Board of Governors—save for his first week in office, when there were three. One Obama appointee took his seat on January 28, 2009. This week the Fed’s vice chair announced he will be stepping down in June, opening up the possibility that within his first two years of office, Obama could make four appointments to the Fed—five, if you count Bernanke’s reappointment. (Bernanke was reappointed to the chairmanship, a four-year term. But his membership on the Board, a 14-year term, extends to 2020.) There are only seven seats on the Fed Board. Which means that Obama has a chance to reshape the country’s monetary policy by appointing a new majority of the Board (plus reappointing its chairman), potentially even before congressional mid-term elections. So far, the President has not nominated anyone for these vacancies.
Is this the historic, far-reaching opportunity that it seems to be? And if so, is the administration blowing it?
Well, not really. But it is probably way more important than anything else the administration can try to do to decrease unemployment. Because of its influence over interest rates and credit, the Fed has far greater and more direct sway over the level of employment than any other part of the government. The Fed is a big deal.
But the most significant powers of the Fed—the ability to set interest rates through “open-market operations” like buying and selling treasury bonds—are wielded not by the Board of Governors per se, but by the Federal Open Market Committee (FOMC). The FOMC consists of the seven (7) members of the Board, plus five (5) private members appointed by regional Federal Reserve Banks on a rotation.1 That’s twelve (12) seats altogether.
So the four potential seats on the Fed Board that Obama could fill would not actually constitute a decisive majority on the FOMC. And according to this NYT story, the 5 FOMC representatives from the regional Fed banks tend to be even more hawkish on inflation than the Washington Fed Board members. So, because of their apparent aversion to any inflation at all, they are presumably unlikely to support the kind of credit-easing measures that could get businesses hiring again.
But hey, Mr. President, it wouldn’t hurt to try! It’s always possible that there are a couple of closet “unemployment hawks” on the FOMC. After all, the Federal Reserve Act mandates that the FOMC pursue a policy of “maximum employment” and price stability—not just the latter.
- This arrangement, whereby 5 of 12 seats on the FOMC are held by people not appointed by the President or by a department head, is pretty clearly unconstitutional. It clearly violates the Appointments Clause, but I’ll write about that another time. [↩]
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[...] S. Eccles Federal Reserve Board Building 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) [...]