Taking a break from conference activities to note that this is a bad idea:
Frank Introduces Bill to Concentrate Fed Power in DC, by Luca Di Leo, WSJ: U.S. Rep. Barney Frank (D., Mass) Tuesday introduced a bill that would let interest rates be set only by Federal Reserve officials picked by the government, a new attempt to move power away from regional Fed officials chosen by the private sector.
The bill would remove from the 12-member policy-setting Federal Open Market Committee the five members who represent regional Fed banks. Only the seven-member board in Washington, which currently has two vacant seats, would get to vote onA interest rates. The congressman said this would make the Fed more democratic and increase “transparency and accountability on the FOMC” by eliminating those officials who are effectively picked by business executives.
Frank’s bill faces significant hurdles to clear Congress, where Republicans are likely to resist centralizing Fed powers in Washington. …Analysts said Frank’s new proposal could hurt the Fed’s independence from Congress. …
I can support – and have advocated — reforming the way in which regional bank presidents are selected. But this proposal, which removes geographical representation even though recessions do not hit each area of the country equally, is a bad idea (the Board of Governors can already veto the appointment of a regional bank president, though I don’t know of any instances where this power has been used). It takes us further away from the populist roots of the Fed’s structure, a structure that tried hard to represent all interests in policy. It also furthers the concentration of power in Washington that has been occurring slowly but surely ever since the Bank Reform Acts in the wake of the recession established the Fed’s current structure. In addition, it takes another step toward increasing the power of Congress over day to day monetary policy. When I look at how fiscal policy was conducted, the debate over the bank bailouts, the politicization of policy, and the general economic knowledge of those who want to have an increased hand in setting policy, I hate to even imagine how bad things would be if Congress had been in charge of monetary policy.
Anyway, there are more points to be made on this, most of which I’ve made in the past, but I think my view here is clear — reform the selection process for regional bank presidents, but don’t increase the concentration of power in Washington. (This was part of Dodd-Frank, it used to be that nine regional bank board members selected the regional bank president, three that represent bankers, three that represent business, and three that represent the public interest. Dodd-Franik removed the three votes representing banking interests, but left the three defending business interests. I would like to see, at a minimum, less representation of business so that the public interest generally can take center stage).