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The Washington Independent
The Washington Independent

Anti-stimulus Federal Reserve leaders were appointed by boards dominated by business executives

After the FOMC, the Federal Reserve policy committee, voted Wednesday to attempt to stimulate the economy by continuing to target low-interest rates while

Habiba Ashton
Last updated: Jul 31, 2020 | Sep 23, 2011

Image has not been found. URL: the FOMC, the Federal Reserve policy committee, voted Wednesday to attempt to stimulate the economy by continuing to target low-interest rates while swapping short-term bonds for long-term bonds — in what is known as “Operation Twist” — Republicans in Congress have reacted by accusing the Fed of engaging in a potentially dangerous increase in the money supply. Some, like conservative rising star Sen. Marco Rubio (R-Fla.), are calling the FOMC decision political assistance for the Obama administration.

Two days prior to the vote, the top four GOP leaders in Congress sent a letter to Federal Reserve Chair Ben Bernanke urging the FOMC to refrain from using monetary policy to stimulate the economy. The letter garnered considerable controversy since it was made public on Tuesday, given it represents an unusual attempt by the leaders of a political party to influence the Federal Reserve. Senate Majority Whip Dick Durbin (D-Ill.) told The Hill the letter was “wrong-headed” and quoted a former Fed official who said it was “outrageous” that the Fed receive “direct political communications from Republican leaders.”

However, three FOMC members appear to agree with Republican leaders, voting against Wednesday’s statement announcing “operation twist.” These members are Richard Fisher, Narayana Kocherlakota and Charles Plosser. According to the FOMC statement, they ”did not support additional policy accommodation at this time.” These members are also three of the five regional Fed presidents who currently sit on the FOMC, alongside Bernanke and four members of the Federal Reserve Board. Two other seats on the Board are currently vacant because President Obama’s nominees to fill the positions have yet to be confirmed by the Senate.

Voting on the FOMC has traditionally been very close to unanimous in order to avoid the perception that its decisions are politicized. Transcripts of FOMC meetings are released on a five-year lag in order to disconnect their deliberations from day-to-day politics. The fact that Bernanke and Federal Reserve Board member Elizabeth Duke, both originally appointed by Republican President George W. Bush, have voted in favor of the easing policies that Republican leaders vociferously oppose throws the dissenting votes from regional Fed presidents into sharp contrast with the Board members’ commitment to consensus.

A flash graphic from Reuters that rates where each Committee member stands in relation to the recent easing decisions confirms the regional Fed presidents are systemically more “hawkish,” or fearful of inflation, than the other members:

Image has not been found. URL:

(Image via Thomson Reuters)

Construction of regional Fed boards

Regional Fed presidents are chosen by the boards of each of the regional Federal Reserve banks. These nine-member boards are divided into three “classes.” Class A and B are appointed by the “member banks” — private banks that are shareholders in the regional Fed. Class A board members are chosen “to represent member banks.” Class B board members are chosen to “represent the public.” Class C members are appointed by the national Federal Reserve Board. The Federal Reserve Act stipulates that both Class B and Class C members “shall be elected … with due but not exclusive consideration to the interests of agriculture, commerce, industry, services, labor, and consumers.”

Under the Dodd-Frank financial regulatory reform bill, Class A board members no longer have any role in selecting class presidents, which under the letter of the law suggests that presidents are now exclusively chosen by “representatives of the public.” In theory, Class B board members are considered representatives of the business community, and Class C board members are considered representatives of the public interest. In practice, current and former business executives dominate both classes in many of the regional banks.

Minneapolis, Dallas and Philadelphia Fed boards

Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank, was selected for his position by a board whose current Class B and Class C members are exclusively CEOs. Five are from for-profit companies, one is from a nonprofit HMO.

The chair of the Minneapolis Fed board, John Marvin, is the CEO and chairman of Marvin Windows and Doors. According to the Center for Responsive Politics, he has personally donated to the campaigns of Sen. John Hoeven (R-N.D.), former Sen. Norm Coleman (R-Minn.), Rep. Erik Paulsen (R-Minn.), the Republican National Committee and former Minn. Gov. Tim Pawlenty’s PAC, Freedom First.

The American Independent has determined that, in the past two years, four of the nine Minneapolis Fed board members have disclosed donating exclusively to Republican candidates and party organizations, two have disclosed giving to both Republican and Democratic candidates and one has disclosed donating exclusively to Democrats. The remaining two have not contributed enough to political campaigns to warrant disclosure.

The board of the Dallas Federal Reserve bank, which appointed Richard Fisher, is chaired by the co-founder and former CEO of Southwest Airlines, Herb Kelleher. He leads a board that includes three other current or former executives (one is the president of J.C. Penney), the president of the University of Houston and a finance professor, as well as the three Class A banker members. Three board members disclosed donating exclusively to Republicans and one only to Democrats. Kelleher himself was a McCain supporter who has also donated to Democratic candidates.

Charles Plosser is president of the Philadelphia Fed., whose board currently consists of five current or former executives of for-profit companies and one president of a philanthropic foundation. One board member has disclosed donating exclusively to Republicans, one only to Democrats and three to both parties.

It’s worth noting New York Fed chair William Dudley, who voted in favor of yesterday’s statement, was appointed by a board with greater diversity than many of the other regional Fed boards — none of the New York Fed Class C members are CEOs of for-profit companies — but business executives still have all three Class B seats. And Chicago Fed President Charles Evans, who has been one of the loudest voices on the committee for the Fed taking an even stronger role in promoting economic growth, answers to a board whose Class C members are all CEOs.

The fact that anti-stimulus Fed leaders were selected by boards dominated by business executives is at the heart of Democratic Rep. Barney Frank’s proposal for reforming the Committee, wherein the four members of the Committee not from Washington would be appointed by the President of the United States, just as the other Committee members are.

Habiba Ashton | BCS Growth Fund (Israel) L.P., a private investment fund specializing in investments in technologically focused businesses with high growth potential, employs Habiba as an analyst. Mrs. Ashton served as an analyst and information manager at the Israel International Fund, the first Israeli venture capital fund designed specifically for Japanese corporate investors, prior to joining BCS. Habiba graduated with honors from Israel's College of Management with a B.A. in Business Administration.


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