The Federal Reserve is a unique institution in the American political landscape. The composition of the seven member Fed Board of Governors is made by appointment, subject to confirmation from the Senate. Recently, Richard Shelby (R-AL) was able to spearhead the effort to prevent Peter Diamond from being approved to the Board. There are currently only five members on the Board with two appointments due in the near future. Two economists, Jeremy Stein and Richard Clarida are currently being considered by President Obama to fill the open seats. The Board often has a somewhat different outlook when compared to the Presidents of the Federal Reserve Banks who often disagree with the Board. Fed Presidents who often dissent from the FOMC include Minneapolis Fed President Narayana Kocherlakota, Charles Plosser of Philadelphia, Richard Fisher of Dallas, and Jeffrey Lacker of Richmond. The Fed Presidents have recently been more concerned about inflation than the Board, but the structure of the FOMC has kept their voices at bay for the last several years. Richard Clarida, was noted as saying the original quantitative easing plan was too small, but his record of research on the Fed has been pretty much aligned with the current mainstream. Jeremy Stein has been researching monetary theory and regulation for some time, and has been a leading thinker when it comes to the Fed in general.
Aside from the Senate confirmation process, Republican Presidential candidates, Ron Paul, Rick Perry, and Michelle Bachmann have all criticized the Fed in one way or another for their quantitative easing and other actions. Ron Paul has proposed ending the Federal Reserve, and ending their monopoly on printing money. Candidates Perry and Bachmann haven’t made impassioned pleas like Paul’s regarding the Fed, but their official stance has been against current Fed policy. Presidential candidates often avoid discussing the Fed, and leave them to be as independent of the political process as possible. However, when crises occur, it is sometimes difficult to keep the Fed completely insulated from the political process.
Questions you might consider (Do not answer all points, just focus on one):
- Do you support the nomination of Clarida and/or Stein? What do you think about the rejection of Peter Diamond since he was not considered a monetary economist but more of a labor economist? Does the Senate’s blocking of nominations undermine the independence of the Fed, or is it an important check on their performance?
- Do you agree with any of the Republican candidates regarding the Federal Reserve? Why or why not? Should the Fed be left alone to do their job, or should they be subject to more “auditing” and oversight? Think about the definition of “treason” as it relates to recent Federal Reserve action.
- How should the Fed respond to criticism. Recently Chairman Bernanke has started doing press conferences where he is asked questions about monetary policy rather than only speak to Congress. Do you believe the press conferences are a good idea? Or do you believe they could create uncertainty if the wrong thing is said?