A Guide to Federal Reserve Policymakers: Lawyers Rule!

Posted September 20, 2018 by rvillareal

• The Fed policymakers include 7 Fed governors and 12 regional bank presidents on the FOMC. When all the vacancies are filled, perhaps by year-end, this will be the first time since 2013 that all seven positions have been filled.  If so, Trump will have added five new names to the Board (including the chair and the two vice chairs) in less than two years.  This is fast, as a president usually appoints about one per year.
• For the first time in 40 years, lawyers are in charge, with both the chairman and one of the vice chairmen with legal degrees. The influence of the 250-PhD-level economists on staff is still important but will be less influential than when PhD economists were calling the shots.
• With so many new and relatively inexperienced members, the chances for policy surprises and mistakes are high. That is why investors were pleased with the unexpectedly “safe” choices of Trump.
• Powell is already making his mark at the Fed, with clearer and shorter policy statements. He plans on holding press conferences after every meeting next year, making each meeting “live” for policy changes.  It does not appear that the Powell-led Board will be overly influenced by the more hawkish staff who believe their models that suggest a lot more inflation is around the corner.  Powell realizes that Greenspan’s greatest achievement at the FOMC was not sharing the staff’s inflation anxieties in the mid-1990s.  Powell also knows the next danger signs may come more from the financial markets than from wage and price inflation.
• Powell (together with Quarles) can be expected to provide a lighter regulatory touch but is unlikely to support major deregulation, as advocated by many in Congress and the White House.
• The 12 bank presidents tend to be more hawkish than Board members and have longer tenure on the FOMC. Still, seven presidents have served less than five years, while three have served 10 years or more.

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