Clinton Joins Crowd Calling for an Overhaul of Fed Governanceby
Statement calls for removing bankers from regional boards
Fed needs to be more representative of America, campaign says
Hillary Clinton is the latest voice calling for changes at the Federal Reserve.
A spokesman for the front-runner for the Democratic presidential nomination released a statement Thursday saying that the Fed “needs to be more representative of America as a whole” and arguing that “commonsense reforms -- like getting bankers off the boards of regional Federal Reserve banks -- are long overdue.”
The statement, sent by Clinton spokesman Jesse Ferguson and first reported by the Washington Post, comes as Democrats unleash a volley of criticism against the central bank. Earlier on Thursday, lawmakers called for more consideration of African American, Latino and female candidates for top Fed posts in a letter to Chair Janet Yellen. The missive was signed by a majority of the Democratic members of Congress.
Clinton’s position garnered praise from the union-backed Fed Up coalition, which coordinated the congressional letter.
The campaign’s comment also partly echoed a proposal that Fed Up put out last week, in which former Fed economist Andrew Levin suggested structural reforms for the central bank. Levin argued that the Fed should be made a more public institution.
Currently, regional reserve bank boards have nine directors: six are elected by member banks, with three representing commercial banks and three representing the public. The final three directors are appointed by the Board of Governors in Washington, and are also meant to represent the public.
That means two-thirds of the board seats at the 12 regional Fed banks are controlled by commercial banks, Levin wrote, saying that the directors should instead be affiliated with small businesses and non-profit organizations and selected through a “process overseen by the Federal Reserve Board and involving the elected officials in each Fed district.”
“The process should ensure that directors are representative of the public in terms of racial/ethnic and gender diversity and educational background and professional experience,” Levin wrote.
Esther George, president of the Kansas City Fed, said Thursday that “diversity for the Federal Reserve is critical,” and that progress has been made both at the board of directors and at the staff level in making sure the Fed reflects the communities that it serves.
Richmond Fed President Jeffrey Lacker pushed back against proposals to make the Fed more public in an article posted Thursday. He said the regional branches’ hybrid governance structure “has come to play an important role in the independence of monetary policy” and “independence allows monetary policy to place greater weight on the long-term benefits of low and stable inflation.”
“The current Fed governance structure may not be ideal,” Lacker wrote. “But until there is a proposal that preserves the monetary policy independence that is so vital to the Fed’s mandate, we should stick to what we have.”
While there have been various Congressional attempts at shaking up Fed structure in recent years, those have made little headway. For instance, Republican Senator Richard Shelby proposed a bill last year that would have tweaked the New York Fed, making its leader a presidential appointee, among other changes, but it never passed.
Donald Trump, the presumptive Republican presidential nominee, has also weighed in on the Fed in recent days. On CNBC last week, Trump said that he’s a “low-interest” person and that he would replace Yellen when her term ends.