Federal Reserve Governance

The Federal Reserve Bank plays a pivotal role in the US Economy, indeed in the world economy. In our Nation, we constantly evaluate the Presidency based upon appointments to the Supreme Court and the lower courts. Those are life appointments and having a balanced Supreme Court is healthy for a democratic nation.

Personally, I have not really paid much attention to Presidential appointments to the Federal Reserve Bank. In truth, I did not even remember the lessons from civics class about the Federal Open Market Committee, which is the policy committee that sets monetary policy at the Fed. My stock broker sent me an email today that made me go do some research. There is a strong chance that 5 of the 7 Federal Reserve Governors may leave office in the next 12 to 18 months. This will provide the Obama Administration with an opportunity to 5 Appointments for 14 year terms which set fiscal policy in America. I hope he chooses well.

Here is the theory about what many insiders believe is about to happen that will open up the 5 chairs.

Here's the lineup. Summers gets the chair. Bernanke leaves. Yellen then retires next year. She is a patriotic lady so she helps transition and then leaves after the new chair, Summers, is confirmed and takes the helm on Feb 1. Raskin gone to Treasury dept. Duke gone. Powell term up next year. Only Tarullo and Stein remain. So of 7 governors only 2 will have an internal history. Obama-Summers-nexus may politicize Fed at same time that Fed's regulatory power is intensified. I'm nervous about a construction like this. Market agents appear nervous, too.

All of this will be happening during the debate about Sequestration, and the challenge that the Federal Government faces when it reaches the budget cap this fall. Moreover, the Fed board is the group that checks the math of our Federal budget and advises Senators and House Representatives on the validity of the economic assumptions in the budget and the impacts it will have to the US and international economy. Massive Federal programs like Medicare, Social Security, Corporate Tax Policy, Income Tax policy, Mortgage Interest Rate Deductions, Obama Care, etc are all informed by the Federal Reserve review.

Americans had better pay attention. The Obama Administration faces a term limitation that insures they have absolutely nothing to lose in making these appointments. The change in Fed policy brought forth by these appointments could be radical. The confirmation hearings and debates in all houses of government should be interesting to watch.

About the FOMC

The term "monetary policy" refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote national economic goals. The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy.
The Federal Reserve controls the three tools of monetary policy--open market operationsthe discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations. Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.
Changes in the federal funds rate trigger a chain of events that affect other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money and credit, and, ultimately, a range of economic variables, including employment, output, and prices of goods and services.

Structure of the FOMC

The Federal Open Market Committee (FOMC) consists of twelve members--the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. The rotating seats are filled from the following four groups of Banks, one Bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco. Nonvoting Reserve Bank presidents attend the meetings of the Committee, participate in the discussions, and contribute to the Committee's assessment of the economy and policy options.
The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.
For more detail on the FOMC and monetary policy, see section 2 of the brochure on the structure of the Federal Reserve System and chapter 2 of Purposes & Functions of the Federal Reserve System. FOMC Rules and Authorizations are also available online.

2013 Members of the FOMC


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