The Incredible Shrinking Fed

Four little Fed governors, keeping markets free,                                                     Stanley Fischer resigned and now there are three.

The Federal Reserve is becoming a lonely place.

During the Obama administration, there were seven members of the U.S. Federal Reserve’s Board of Governors, as there are supposed to be.

Now there are three. That’s less than a quorum. The glass is more than half empty. The board has more vacancies than a Detroit strip mall.

The latest governor to leave (effective in October) is Vice Chair Stanley Fischer, 73, who resigned for “personal reasons” with a year remaining to his term. As we previously announced, Daniel K. Tarullo stepped down in April. Thomas Curry, former comptroller of the currency, resigned soon after President Donald Trump took office.

The Fed also recently replaced its general counsel, as Mark E. Van Der Weide, who joined the Fed staff in 2010 replaced Scott G. Alvarez, who left after 36 years with the Fed.

A U.S. Senate committee voted last week to add former Treasury official Randal Quarles to the Federal Reserve’s board of governors, but things could get even lonelier in the Fed building this winter, as Fed Chair Janet Yellen’s term ends in February.

You’d thing people would be standing in line to serve on the board. It’s big on status and power, and – since the quantitative easing days of Ben Bernanke have passed – the workload is pretty light. Except for a rare vote to increase interest rates, it’s meet, eat and explain why you didn’t raise interest rates. The Fed Chair handles Congressional testimony.

Yes, there are some pretty boring meetings to sit through, but the Fed issues the same policy statement after every meeting with just a few word changes, so you can sleep through the meetings if you want to and no one will notice.

The pay’s not bad, either. The top 113 earners among staff at the Federal Reserve’s Washington headquarters make an average of $246,506 per year, excluding bonuses and other benefits, according to Reuters. Not bad for a taxpayer-funded job, right? A few speaking junkets could put you in good financial standing. And you can pontificate on burning issues, such as, “Strengthening Diversity in Economics” or “The Role of Boards at Large Financial Firms.”

Why All the Openings?

Board members are appointed to staggered two-year terms, so it takes 14 years for the board to turn over, which should keep the board seats full or close to it. So where did everyone go? Is Janet Yellen difficult to work with? Is President Trump, who appoints the governors, difficult to work with?

We don’t know about Ms. Yellen, as Fed meetings take place behind closed doors, but, yes, President Trump does like to say, “You’re fired” a lot.

Still, being fired by the president is certain to bring positive media and plenty of opportunities for interviews. You can’t buy that kind of exposure and, given that many others have already been ousted or stepped down, you won’t be singled out for ridicule.

Maybe it’s that the Fed is no longer being depended on to run the economy. Maybe it’s the thought of having to unwind the Fed’s $4.5 trillion bond portfolio. Maybe it’s that the food is bad at the board meetings. Whatever the case, Fed followers will be following closely in anticipation of the appointment of the next chair.

Until recently, President Trump’s chief economic advisor, Gary Cohn, was considered the most likely candidate to replace Janet Yellen as Fed chair, but Cohn’s criticism of President Trump’s reaction to recent violence in Charlottesville, Va., is believed to have reduced the likelihood of his nomination.

What It All Means

With four vacancies to fill, including the seat that Quarles was just approved four, media recognize that President Trump will have an opportunity to remake the board based on his policy goals.

While the president’s policies aren’t always clear, the new board will likely play a lesser role in the economy and will focus on deregulating the financial industry. His predecessor set new records for regulation, which many believe is a major reason for the slow economic growth of the past eight years.

“But there’s another potential outcome with the Fed’s vacancies,” according to The Atlantic. “The administration might fail to quickly nominate replacements and the Senate might refuse to confirm them, leaving positions open for prolonged periods.”

An understaffed Fed could find it difficult to get much done. Given the Fed’s record over the past eight years, worse things could happen.

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