Promoting diversity among Fed presidents

Reconciling popular will with central bank independence

Tuesday’s presidential election is receiving the lion’s share of attention – but central bank watchers are carefully observing another American selection, taking place shortly afterward.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, retires in February. The selection of his successor has exposed the regional Feds, long accustomed to flying under the radar, to a degree of scrutiny and discourse more akin to that applied to the board of governors of the Federal Reserve.

The issue at hand is the method by which regional Federal Reserve presidents are chosen, with some politicians questioning the influence of the boards of directors of each Fed. The process by which Fed presidents are selected, they argue, has failed to produce a body of presidents that adequately reflects the nation’s racial, ethnic, economic and gender diversity.

These critics also claim that the selection process for monetary policy-makers from the regional Feds, who have a literal seat at the table with the presidential appointees who comprise the board of governors of the Federal Reserve System, is too opaque. They argue that this can produce a Federal Open Market Committee that is insufficiently diverse to ensure that monetary policy decisions truly consider all Americans.

The Fed board is appointed by the president and confirmed by the Senate. Yet the 12 regional Fed presidents are selected by their own boards. The Fed board interviews and confirms the final candidate.

In May, Hillary Clinton and Bernie Sanders, along with a group of congressional Democrats, sent a letter to Fed Chair Janet Yellen. In the letter, they expressed concern that the Fed ‘has not yet fulfilled its statutory and moral obligation to ensure that its leadership reflects the composition of our diverse nation in terms of gender, race and ethnicity, economic background, and occupation’, and called on it to take steps ‘to promptly begin to remedy this issue’.

Others believe that the FOMC’s current composition is representative, pointing to the geographic diversity of each regional Fed, and the fact that each Fed conducts independent research and represents the economic circumstances of its population at the FOMC.

Jeffrey Lacker, president of the Richmond Fed, testified in September before the subcommittee on monetary policy and trade of the House Financial Services Committee on Federal Reserve Bank governance. ‘While the nature of our economy and financial markets have changed in many ways since the founding of the Federal Reserve, the federated structure still ensures that a diversity of perspectives on monetary policy and economic conditions are brought to the table,’ he said.

The Fed has been operating in its present form since 1913. In that time, it has had neither an African-American nor a Latino Fed regional president, and only six women have served as president of a Fed. The first non-white Fed president, Narayana Kocherlakota, was appointed president of the Minneapolis Fed in 2009 and was succeeded by the second non-white president, Neel Kashkari, this year. In the history of the modern Federal Reserve System, there has been a total of 134 regional presidents.

Atlanta may serve as a test case for the debate. Its district consists of Georgia, Florida and Alabama, along with parts of Louisiana, Mississippi and Tennessee. These states are among the 12 with the greatest percentage of African-American citizens in the US. The population of Atlanta is 54% African-American, according to 2010 US Census figures.

At a time when America’s corporate boards are under pressure to increase member diversity and the nation’s race issues continue to vex and divide, it is right to bring attention to the lack of diversity among Fed presidents. However, when this attention is brought by presidential candidates, and lawmakers representing just one party, some might view it as an attempt to improperly influence the Fed for political advantage.

Rachel Pine is Senior Manager, North America and Caribbean & Pensions at OMFIF.

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