Wednesday, March 17, 2010

Will Obama's Fed Picks Change The Fed?

The retirement of Vice Chairman Donald Kohn and Obama's decision to replace him with Janet Yellen, as well as to appoint Sarah Bloom Raskin and Peter Diamond to vacancies on the Board of Governors raises the question of whether this means a shift in attitudes or decisionmaking at the Fed. The answer is probably not too much, mostly because Yellen is already involved in FOMC meetings as San Francisco Fed president, while the othet two appointees lack experience with monetary economics, although Raskin, a lawyer by training, is currently Commissioner of Financial Regulation in Maryland, and Peter Diamond is a distinguished MIT economist, although an expert on social security and fiscal policy rather than monetary theory or policy. Yellen is viewed by most as "dove" in terms of favoring fighting unemployment more than inflation, although Mark Thoma has linked to Lawrence Meyer claiming that at least on one occasion in the mid-1990s when she was on the Board, Yellen was hawkish.

Some observers have argued that the Board needs beefing up by "real economists" to offset the supposedly hawkish set of district bank presidents, many of them distinguished Ph.D. monetary economists with strong views and large egos, who may be dominating the FOMC. In contrast with the Board of Governors who are appointed by presidents with approval by the Senate for 14 year terms (which none ever finish anymore), district bank presidents are appointed by Boards of Directors of the district banks, with the approval of the Board of Governors, and often represent local economic interests as well as the sometimes peculiar views of the specific district banks, with some known for particular views. Thus, the St. Louis and Richmond Feds have long been viewed as bastion of old-fashioned monetarism, while the Minneapolis Fed (with its connections to the University of Minnesota) is viewed as a fountainhead of new classical economics.

I shall list all the current governors and district bank presidents below with some information about each, while noting that indeed Kohn was senior to all, with a University of Michigan Ph.D. and starting at the Kansas City Fed in 1970 before going to Washington where he became Greenspan's right hand man in many high level staff positions before joining the Board of Governors and becoming Vice Chairman. Yellen served on the staff in Washington in 1977-78, as well as the Board of Governors in 1994-97, before becoming SF Fed president in 2004, a definite insider with a distinguished academic record (and Nobel Prize winning husband), if not as much of one as Kohn. BTW, it should be noted that she may not accept the appointment as it would involve a pay cut of about $200,000 per year.

Board of Governors (continuing):

Ben Bernanke, Chairman, econ PhD MIT 1979, distinguished publication record,
Bd of Govs, 2002-05, Chairman, 2006-

Kevin Warsh, J.D. Harvard, 1995, Bd of Govs, 2006-

Elizabeth Duke, MBA, Old Dominion (year?), Bd of Govs, 2008-
came up through Virginia banking system, Chair Bd of Directors, ABA, 2004-06

Daniel Tarullo, J.D. University of Michigan, 1977, Bd of Govs, 2009-

District Bank Presidents (continuing, not listing Yellen at San Francisco Fed):

Boston: Eric Rosengren, econ PhD, U. of Wisconsin, 1986, at Boston Fed since 1985, president since 2007

New York: William Dudley, (first among equals and permanently on FOMC, which includes five district bank presidents at any time), econ PhD, UC-Berkeley, 1982, at NY Fed since 2007, president since 2009, formerly at Goldman Sachs

Philadelphia: Charles Plosser, econ Phd, U. of Chicago, 1976, strong new classical orientation and distinguished publication record, formerly associated with strongly monetarist Shadow Open Market Committee, president since 2006

Cleveland: Sandra Pianalto, econ MA George Washington U., (year?), at Cleveland since 1983, president since 2003

Richmond: Jeffrey Lacker, econ PhD, U. of Wisconsin, 1984, at Richmond since 1989, president since 2004. Despite having strongly Keynesian major prof, Donald Hester, Lacker seems to have gone native at the Richmond Fed with a strongly hawkish reputation.

Atlanta: Dennis Lockhart, econ and foreign policy MA, Johns Hopkins, 1971. At Citibank/Citigroup, 1971-88. At Atlanta since becoming president, 2007.

Chicago: Charles Evans, econ PhD, Carnegie-Mellon (year?), distinguished publication record, at Chicago since 1991, president since 2007.

St. Louis: James Bullard, econ PhD, Indiana, 1990. distinguished publication record and interested in agent based modeling and complex dynamics, currently serving as adjunct prof at Washington U., and as coeditor of the Journal of Economic Dynamics and Control. At St. Louis since 1990, president since 2008.

Minneapolis: Narayana Kotchelakota, econ PhD U. of Chicago, 1987, formerly at U. of Minnesota and strong new classical with distinguished publication record. At Minneapolis since becoming president, 2009.

Kansas City: Thomas Hoenig, econ PhD Iowa State (year?), at KC Fed since 1973, making him senior person of this group in Fed, president since 1991, also senior at that level.

Dallas: Richard Fisher, highest degree unlisted. Background in private banking starting in 1975 at Brown, Harrisman, later a diplomat, trade rep for NAFTA negotiations and also at Kissinger Associates. At Dallas as president since 2005.


Myrtle Blackwood said...

It doesn't seem to matter who is on the Fed with respect to this institutions lack of control over the global US dollar glut.

Implications of this glut:
* selective interest rates in favour of transnational corporations;
* selective access to credit (TNCs the winners again);
* lack of control over speculative activities (TNCs again - carry trade and other currency-related in particular);
* now we see, with the very long history of taxpayer-funded bailouts that selectivity has gone to its ultimate extreme.

Poor nations, small businesses and households are being continually squeezed by the Fed to counteract the inflationary activities of those 'too big to fail'.

What, if anything, do the Fed staff have to say on this subject?

Thanks for the helpful background info, Barkley.

Jack said...

It seems that members of the Fed Bd of Governers would do well to familiarize themselves with the Fed's self stated responsibilities,
which can be found here on their own web site:

It appears that monetary policy is only one of four areas of concern, as stated on that page:

Today, the Federal Reserve's duties fall into four general areas:
*conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates, *supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers,
*maintaining the stability of the financial system and containing systemic risk that may arise in financial markets,
*providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system.