Fed Appointments

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