Why the US Senate should not approve Obama’s nominees for the Fed Board

Recently the Senate Banking Committee confirmed the three nominees to the Federal Reserve's board. Somewhere in the next few weeks, the full Senate will vote as well. If it confirms the nominees, they will become members of the board of the Federal Reserve. But the Senate should reject them. Not because they are not good economists, in fact they are excellent, but because they are economists. By confirming the trio, the Senate would in effect be accomplice in breaching the Federal Reserve Act. 

After nominating Janet Yellen to succeed Ben Bernanke to become the 15th chairperson of the Fed, President Barack Obama, at the beginning of this year, announced his nomination of Stanley Fisher as the vice-chairman and Lael Brainard as a new member of the Board. Furthermore, President Obama nominated Jerome Powell for a second term at the Fed. Members of the Board of Governors of the Fed are nominated by the President but they have to be confirmed by the Senate.

Fisher, Brainard and Powell can very well be, as President Obama described them, “one of the world’s leading economic policy minds” (Fisher), “one of my top and most trusted international economic advisors” (Brainard) or “an effective and wise voice at the Fed”(Powell), all of this is not relevant. The reason the Senate should refuse approval is that by nominating Fisher, Brainard and Powell, President Obama is in effect breaching the Federal Reserve Act.

Section 10 of that Act states that ‘in selecting the members of the Board, …, the President shall have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country.’
 

Stanley Fisher is an, internationally renowned, economist. Lael Brainard is an economist by profession as well. Jerome Powell is professor of law and investment banker. The other members of the Fed Board, Janet Yellen, Jeremy Stein and Daniel Tarullo are either an economist (Yellen and Stein) or a lawyer (Tarullo).
 

Financial interest are arguably too heavily represented on this Fed Board where four out of six 

members are economists and another one is an investment banker. It is hard to see how the mandated fair representation of agricultural, industrial and commercial interest is met. None of the current Board members and the three nominees can be said to be a fair representative of agricultural, industrial or commercial sector.
 

Moreover, one could argue that there appears to be a problem with the fair geographical representation on the Board as well. Yellen was born in New York, not far away from Stein who hails from the neighboring New Jersey. Powell’s birth certificate is issued in Washington D.C., Tarullo calls Boston his birthplace and Brainard was born a little south, in Pennsylvania. New York, New Jersey, Boston, Pennsylvania and Washington D.C. have at least one thing in common: they are all to be found on the eastern seaboard of the United States. Fisher is the odd one out, but he can hardly be seen as a representative of the rest of the country as he was born in Africa.
 

The composition of the Fed Board, including the three nominees, is in clear breach of the Federal Reserve Act. It most certainly does not constitute a fair representation of the financial, agricultural, industrial and commercial interests. If anything, it’s composition is heavily skewed towards academics and economists. This could explain why the Fed, according to many observers, since 2008 has acted (and still acts) too much in the interest of the financial sector giving the rest a cold shoulder in the process. During the confirmation process of Janet Yellen, many Senators, both Democrats and Republicans, uttered critique that the Fed is failing to help the American middle-class and providing generous help for financial industry. One can also argue that it does not represent a fair representation of geographical divisions of the country as well. All members of the Fed Board hail from just a couple of Fed districts (there are 12 in total) and some are from the same district, also something which Federal Reserve Act forbids.
 

There is a saying that economy is too important to be left to economists alone. The same applies for monetary policy. It is too important for any country’s wellbeing to be left to (academic) economists alone.