US

Fed Appointments

Recent nominations to join the board of governors of the Federal Reserve have raised concerns about political threats to the independence of monetary policy-making. The Economist has explained the dangers of weakened central banks, not only in the United States but also elsewhere in the world. And economists and economic journalists have questioned the economic ideas of President Trump’s latest Fed picks, both of whom have now withdrawn their names.

We invited our US panel of economic experts to express their views on central bank appointments by asking whether they agreed or disagreed with the following statement, and if so, how strongly and with what degree of confidence:

Selecting candidates for membership of the Federal Open Market Committee (FOMC) based primarily on their political views would lead to worse monetary policy outcomes than has been the case over the last 15 years.

Of our 43 experts, 40 participated in this survey and the response was almost unanimous. Weighted by each expert’s confidence in their response, 79% strongly agreed with the statement, 20% agreed, and just 1% was uncertain.

Among the short comments that the experts are able to include when they participate in the survey, some expressed what is now a longstanding consensus in economics about central bank independence. As Eric Maskin at Harvard said, ‘Good monetary policy is largely technocratic, not political.’ Robert Shimer at Chicago added: ‘Independence of the central bank is the cornerstone of good monetary policy.’

Others were explicit about the threat of a stronger influence of electoral politics on monetary policy-making. David Autor at MIT commented: ‘Monetary policy has an important public mission – and it’s not about electoral politics.’ Maurice Obstfeld at Berkeley observed that: ‘Sound central bank policy requires a long-term perspective that is insulated from electoral-cycle pressures.’ And Robert Hall at Stanford mentioned that: ‘The obvious danger is an unwise monetary expansion timed to win an election.’

Two experts highlighted the word ‘primarily’ in the statement to which the panel responded. Darrell Duffie at Stanford noted that ‘”Primarily” political implies (a) lower priority on skill at monetary policy, (b) could place weight on political over economic outcomes.’ Anil Kashyap at Chicago stressed: ‘”Primarily” is key here. Diversity of thought and experience is good; picking central bankers because of political fealty is a very bad idea.’

Daron Acemoglu at MIT concurred with the statement but expressed an additional concern about Fed appointments: ‘Absolutely. But we should also worry about other things, including links to the financial industry.’

Larry Samuelson at Yale returned to the central point of the statement: whether monetary policy outcome will be worse in future with appointments made on the basis of political views. He concluded: ‘The Fed derives its strength from its apolitical nature. A politicized Fed will not be nearly as effective.’

All comments made by the experts are in the full survey results.

Romesh Vaitilingam
@econromesh
May 2019

 

Selecting candidates for membership of the Federal Open Market Committee (FOMC) based primarily on their political views would lead to worse monetary policy outcomes than has been the case over the last 15 years.

Responses weighted by each expert's confidence

Participant University Vote Confidence Bio/Vote History
Acemoglu
Daron Acemoglu
MIT
Agree
6
Bio/Vote History
Absolutely. But we should also worry about other things, including links to the financial industry.
Alesina
Alberto Alesina
Harvard
Strongly Agree
10
Bio/Vote History
Altonji
Joseph Altonji
Yale
Strongly Agree
8
Bio/Vote History
Auerbach
Alan Auerbach
Berkeley
Agree
7
Bio/Vote History
Autor
David Autor
MIT
Strongly Agree
8
Bio/Vote History
Monetary policy has an important public mission -- and it's not about electoral politics
Baicker
Katherine Baicker
University of Chicago
Strongly Agree
3
Bio/Vote History
Banerjee
Abhijit Banerjee
MIT
Agree
6
Bio/Vote History
Bertrand
Marianne Bertrand
Chicago
Strongly Agree
4
Bio/Vote History
Brunnermeier
Markus Brunnermeier
Princeton
Strongly Agree
8
Bio/Vote History
Chetty
Raj Chetty
Harvard Did Not Answer Bio/Vote History
Chevalier
Judith Chevalier
Yale
Agree
4
Bio/Vote History
Cutler
David Cutler
Harvard
Strongly Agree
5
Bio/Vote History
Deaton
Angus Deaton
Princeton
Agree
8
Bio/Vote History
Duffie
Darrell Duffie
Stanford
Strongly Agree
10
Bio/Vote History
"primarily" political implies (a) lower priority on skill at monetary policy, (b) could place weight on political over economic outcomes.
Edlin
Aaron Edlin
Berkeley
Strongly Agree
7
Bio/Vote History
Helping a party is different from helping the country.
Eichengreen
Barry Eichengreen
Berkeley
Strongly Agree
10
Bio/Vote History
Einav
Liran Einav
Stanford
Agree
1
Bio/Vote History
Fair
Ray Fair
Yale
Agree
5
Bio/Vote History
Finkelstein
Amy Finkelstein
MIT Did Not Answer Bio/Vote History
Goolsbee
Austan Goolsbee
Chicago
Strongly Agree
10
Bio/Vote History
Politicizing the media, the Congress and the Supreme Court has worked out so well, why not do the same for the economy?
Greenstone
Michael Greenstone
University of Chicago
Strongly Agree
8
Bio/Vote History
Hall
Robert Hall
Stanford
Agree
7
Bio/Vote History
The obvious danger is an unwise monetary expansion timed to win an election.
Hart
Oliver Hart
Harvard
Strongly Agree
8
Bio/Vote History
Holmström
Bengt Holmström
MIT
Strongly Agree
7
Bio/Vote History
Hoxby
Caroline Hoxby
Stanford Did Not Answer Bio/Vote History
Hoynes
Hilary Hoynes
Berkeley
Strongly Agree
10
Bio/Vote History
Judd
Kenneth Judd
Stanford
Strongly Agree
10
Bio/Vote History
Kaplan
Steven Kaplan
Chicago Booth
Uncertain
3
Bio/Vote History
Current appointees are appointed based on their views. I.e.. Democratic president appoint Democrats. Republican presidents do the same.
Kashyap
Anil Kashyap
Chicago Booth
Strongly Agree
10
Bio/Vote History
Primarily is key here. Diversity of thought & experience is good; picking central bankers because of political fielty is a very bad idea
Klenow
Pete Klenow
Stanford
Strongly Agree
7
Bio/Vote History
Levin
Jonathan Levin
Stanford
Agree
5
Bio/Vote History
Maskin
Eric Maskin
Harvard
Agree
7
Bio/Vote History
Good monetary policy is largely technocratic, not political
Nordhaus
William Nordhaus
Yale
Strongly Agree
9
Bio/Vote History
Obstfeld
Maurice Obstfeld
Berkeley
Strongly Agree
10
Bio/Vote History
Sound central bank policy requires a long-term perspective that is insulated from electoral-cycle pressures.
Saez
Emmanuel Saez
Berkeley
Strongly Agree
6
Bio/Vote History
Samuelson
Larry Samuelson
Yale
Strongly Agree
8
Bio/Vote History
The Fed derives its strength from its apolitical nature. A politicized Fed will not be nearly as effective.
Scheinkman
José Scheinkman
Columbia University
Strongly Agree
8
Bio/Vote History
Schmalensee
Richard Schmalensee
MIT
Strongly Agree
7
Bio/Vote History
Shapiro
Carl Shapiro
Berkeley
Strongly Agree
10
Bio/Vote History
Shimer
Robert Shimer
University of Chicago
Strongly Agree
10
Bio/Vote History
Independence of the central bank is the cornerstone of good monetary policy.
Stock
James Stock
Harvard
Strongly Agree
8
Bio/Vote History
Thaler
Richard Thaler
Chicago Booth
Strongly Agree
9
Bio/Vote History
This is the annual question used to determine whether respondents are sentient. Hoping I pass.
Udry
Christopher Udry
Northwestern
Agree
3
Bio/Vote History