Centralverse Q&A, Round V
Round V of the listener favorite, Centralverse Q&A: Who really chooses the Chair? And who is second in command at the Central Bank? If you have questions you’d like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
Introduction
I am Alexander Bagehot and you’re listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.
Between this episode and the prior’s there was a changing of the guard here at the Central Bank of the United States. Jerome Powell was sworn in as the new Chair of the Federal Reserve. As we described in the last episode, Janet Yellen’s final day was February the 3rd. We found out what Janet will be doing somewhat sooner than I had even hoped. David Wessel, a Senior Fellow at the Brookings Institute, a public policy think tank in Washington DC, announced that Janet Yellen will be joining the previous Fed Chair, Ben Bernanke at Brookings. In the announcement he wrote, “We’re looking forward to helping Dr. Yellen reflect on her impressive career, to working with her as she continues to advance the state of economic knowledge, and to benefitting from her advice as we work to improve the quality and effectiveness of fiscal and monetary policies and public understanding of them.” That’s a good sign that a memoir will be in the works. Bernanke’s memoir was released about a year and a half after his term ended. I’m crossing my fingers Janet Yellen’s doesn’t take too much longer than that!
The changes to the upper echelons of leadership at the Federal Reserve over the last few weeks and months inspired both of the questions in today’s edition of Centralverse Q&A. So without anymore delay let’s jump right in.
Question #1
Who really chooses the Chair?
Background #1
On many a previous episode of The Bankster Podcast we have reviewed the process by which the President of the United States nominates and then the Senate confirms an individual to serve as Chair of the Federal Reserve System. It therefore caught me off guard when I got a tweet from the Fed’s official handle @federalreserve, “The #FOMC this week unanimously selected Jerome H. Powell to serve as its Chairman, effective February 3”.
Wait, what about the President and Congress?
Short Answer #1
Shout-out to Sarah Binder, co-author with Mark Spindel of the excellent book The Myth of Independence, for the quick response on twitter when I sent my question out to the wonderful Central Banking corner of Twitter. Her response in effect was, the position the President and the Congress are involved in is that of Chair of the Federal Reserve System - not the FOMC.
Long Answer #1
In more detail, the Federal Reserve Act describes how the Chair of the Federal Reserve as a whole is chosen. However, the FOMC, as the committee within the Fed, made up of all of the Governors and the twelve Reserve Bank Presidents, was not added to the Federal Reserve Act until 1935 and the process of choosing leadership for the committee was not explicitly defined in the Act. So like it works in most committees, the members themselves choose the leadership. However, in the more than 80 years since the formalization of the FOMC they have always chosen the Chair of the System to be the Chair of the FOMC.
Now that we’ve nailed down the full process for the Chair let’s move onto the next question.
Question #2
Who is second in command at the Central Bank?
Short Answer #2
Quite surprisingly there are four second in command positions at the US Central Bank.
Vice Chair of the Federal Reserve System
Vice Chair of the FOMC
Vice Chair of the Federal Reserve System for Supervision and Regulation
First Vice President
Long Answer #2
Here’s a little more information about these second in command positions and who is in them
Vice Chair of the Federal Reserve System
This position is the traditional right hand of the Chair in respects to the system as a whole.
Vice Chair of the FOMC
This person sits right next to the Chair at the FOMC meetings, and has historically always been the President of the Federal Reserve Bank of New York, Bill Dudley for now, although he’s retiring so there will be a new Vice Chair of the FOMC by the end of the year we expect.
Vice Chair of the Federal Reserve System for Supervision and Regulation
This is a new position created by the Dodd Frank Act, which was the regulation passed in 2010 in response to the Great Recession. The Obama era nominees for this position couldn’t get past the congressional, partisan gridlock so the position went unfilled until just a few months ago when Randal Quarles was sworn in as the first Vice Chair for Supervision and Regulation.
First Vice President
Most of them are more operational focused. However, some, like Minneapolis First Vice President is Ron Feldman who has written pretty extensively in academia on the Too Big To Fail problem.
Conclusion
If you have questions you’d like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.
Today’s episode was written, edited, and produced by me, Alexander Bagehot. Thanks to all of you for listening, and I’ll see you next time on The Bankster Podcast!
