Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why Bank Presidents Could Rule the Fed Next Year

Politics / US Federal Reserve Bank Dec 07, 2017 - 09:16 AM GMT

By: John_Mauldin

Politics

There’s a possibility the Fed will shrink to three—or even two—governors next year. I wrote about this in great length in my latest Thoughts from the Frontline, and I highly suggest you give it a read.

Among other things, the missing governors could have an enormous impact on monetary policy.  But before we delve into the implications again, I must explain the Fed’s Byzantine organizational scheme.


How the FOMC Works

Monetary policy—interest rates and the like—issues from the Federal Open Market Committee. The FOMC comprises:

• All seven Board of Governors members

• The president of the New York Federal Reserve Bank

• Four of the other 11 Fed Bank presidents, who rotate through one-year terms.

So on this committee of 12, the politically appointed governors have seven votes, outweighing the five privately appointed bank presidents. Except when there aren’t seven governors, as is the case now and probably will be well into 2018, at least.

In practice, this voting edge rarely matters because Fed chairs work hard to build consensus on the FOMC. They don’t like dissenting votes. I can’t recall any situation where the Board of Governors and the bank presidents seriously disagreed.

But it could happen. And if it happens in 2018, the bank presidents will have the upper hand.

A Looming Clash Between Academics and Business Leaders

Just to make the situation even murkier, two of the five bank presidents who will be on the FOMC in 2018 are currently unknown.

New York Fed President William Dudley will be leaving by mid-year. The other four will be the Atlanta, Cleveland, Richmond, and San Francisco presidents; and the Richmond post is presently vacant.

My good friend and fishing buddy Bob Eisenbeis of Cumberland Advisors, a former Fed economist, pointed out in a recent analysis that once Yellen leaves, the Board of Governors will have only one doctorate-holding economist, Lael Brainard (who will quite likely be leaving the board within a year – see below). Marvin Goodfriend will be another when he is confirmed.

Goodfriend is often cited as a conservative economist. I am not sure how that squares with his open support of negative interest rates. Bob Eisenbeis also just penned a piece on Marvin Goodfriend. There is no question Marvin is qualified. Here’s Bob:

He [Goodfriend] brings a lot to the table. First, he is a first-rate economist with a truly international reputation. He has held visiting, consulting, and evaluative positions at numerous central banks and international organizations including the Riksbank (Sweden), Bank of Japan, De Nederlandsche Bank (Amsterdam), Bank of India, Norges Bank (Norway), Swiss National Bank, ECB, Saudi Arabian Monetary Agency, and IMF, just to name a few. Additionally, he has been actively involved with the Federal Reserve System itself since joining the faculty at Carnegie Mellon in 2005 and has been a member of the Shadow Open Market Committee. So he knows central banking and the workings, culture, and staffs of the Board of Governors and the Federal Reserve system more generally; and he has participated in policy evaluations of the performance of several non-US central banks.

Second, his academic credentials are extensive. He has published in the best journals in both the areas of monetary policy and international trade. He has served on the editorial boards of most of the major economics journals and is a research associate at the National Bureau of Economic Research.

Third, when it comes to policy, he understands the models employed. During Marvin’s long tenure at the Richmond Fed, the policy positions taken by then President Broaddus evidenced a concern by both men for inflation and keeping it low. This belief is also reflected in some of Marvin’s writings and transcends his time at the Richmond Fed. However, as was noted in a recent WSJ article summarizing his likely approach to policy, there are also times when one must also be concerned about deflation and how policy might best be conducted in a world where interest rates are zero or perhaps even negative. For example, Marvin proposed policy options for dealing with the so-called “zero lower bound” problem in 2000, long before it became a real issue in the wake of the financial crisis.

Back to the FOMC. The Atlanta, Cleveland, and San Francisco banks all have economists at the helm. Eisenbeis thinks the New York and Richmond Fed Banks will appoint economists as well.

How Does That Two-Way Split Matter?

So we are setting up a situation where the 2018 FOMC will be split along two axes: governors/bank presidents and economists/non-economists.

As I have mentioned before, the economics profession hasn’t exactly covered itself in glory in the wake of the financial crisis.

Briefly, I think academic economists have become too enamoured of their models, which fail to account for the modern economy’s vast complexity and the often-irrational decisions people make.

I would much prefer to have the Federal Reserve System led by experienced business leaders and others with more practical experience in the economy the Fed helps manage. I think we would all be better off.

Join hundreds of thousands of other readers of Thoughts from the Frontline

Sharp macroeconomic analysis, big market calls, and shrewd predictions are all in a week’s work for visionary thinker and acclaimed financial expert John Mauldin. Since 2001, investors have turned to his Thoughts from the Frontline to be informed about what’s really going on in the economy. Join hundreds of thousands of readers, and get it free in your inbox every week.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in