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Comment: Beyond the Board of Governors vacancies, what changes can be expected for the composition of the FOMC?

The discussions around nominations for the two vacant seats on the Federal Reserve Board of Governors brings up the question of how much the FOMC may change in the future. While I am not look for a spate of departures and new appointments in the near term, the next two or three years could see quite of a bit of turnover.

The Board of Governors has not had a full complement since July 2013. I would not look for that to changing in the current political climate.

If President Trump is determined to play a more active role in selecting his Administration’s picks for the Federal Reserve Board of Governors, and if his choices are of the caliber of Herman Caine and Stephen Moore, the two open seats on the Board could remain unfilled for the remainder of Trump’s term in office. Outside of a few die-hard Trump supporters, the reaction to both Cain and Moore has ranged from politely dismissive to outright derision, without regard to political party. It is highly unlikely a blatant Trump loyalist could successfully navigate the confirmation process, and at this time equally unlikely that Trump will nominate someone who could.

If there are changes on the Board in the near term, it will be because of outside factors, such as if a Governor resigns for personal reasons.

The next term to expire on the Board is currently held by Michelle Bowman. Her term has less than a year to run with its expiration on January 31, 2020. Bowman was only sworn in a few months ago on November 26, 2018. It seems unlikely that she is planning to leave so soon, especially since she was picked after a long search to find someone to fill the spot reserved for a community banker. There are two alternatives. She could be renominated and reconfirmed by the end of this year to fill the next term which would run through January 31, 2034. If not, she could simply remain on as a Governor until she decided to leave or until the President puts forward another name for that seat.

In the medium term, it is possible that the outcome of the 2020 Presidential election could have an effect on the line up of Governors.

Vice Chair Richard Clarida’s term as Governor ends January 31, 2022. That means he could continue on the Board at least until then. However, his term as Vice Chair is of four year’s duration. He was sworn in on September 17, 2018. In order to remain Vice Chair, he would have to remain a Governor. If his term expires and another person is officially tapped to fill that seat, he would be forced out.

The term ending January 31, 2024 is vacant. If someone is appointed to that term, he/she would be secure until then.

Governor Lael Brainard is the sole holdover as a purely Obama appointee. Her term does not end until January 31, 2026. However, it is possible that depending on the outcome of the next Presidential election, she could be ready to move on.

Chair Jerome Powell’s term as Governor runs through January 31, 2028, while his term as Chair runs until early February 2022. It is nearly unprecedented for a former Chair to stay on at the Board if not reappointed to a four-year term, although technically he/she can remain a Governor on the Board until the end of his/her term. While it would be astounding if Trump renominated Powell as Chair, a new President might be willing to keep him on in that role. Fed Chairs can and have survived changes in Administrations. An effective Chair – which Powell has proven to be so far – has the confidence of financial markets and provides continuity.

Like the earlier mentioned vacant term, the one ending January 31, 2030 would be secure for the incumbent if someone was nominated and confirmed.

Finally, Vice Chair for Supervision Randal Quarles’ term as Governor runs through January 31, 2032. However, his term as Vice Chair for Supervision only lasts until October 2021. He could stay on as a Governor if not renominated as a Vice Chair, but it would be doubtful.

In short, while there should be no immediate changes on the horizon for the composition of Board of Governors, expiring terms for Chair, Vice Chair, and Vice Chair of Supervision could lead to some turnover in two or three years.

The District Bank Presidents are appointed to five year-terms that end in years with a 1 or 6, i.e. 2016, 2021, 2026, etc. District Bank Presidents are selected by the Class B and C Directors of the District, although the Board of Governors has a say in the final appointment. Unlike the Board of Governors which has no mandatory retirement age, District Bank Presidents have one.

It is a bit confusing at times, but the Richmond Fed website explains it thus, “The appointment of a president who takes office after a term has begun ends with the end of that term. A Reserve Bank president may be reappointed after serving a full term or a partial term. Reserve Bank presidents are subject to mandatory retirement upon becoming 65 years of age. However, a president initially appointed after age 55 may, at the option of the Bank’s board of directors, serve until attaining ten years of service in the office or age 70, whichever comes first.”

There does not tend to be a lot of turnover among the District Bank Presidents. They often remain in office until they reach retirement age. The current group will all be under retirement age at the expiration of the next term on February 28, 2021. However, half of them will be nearing that milestone and it is to be expected that at least some will announce their pending retirement as soon as 2020. This group includes many of the most senior of the District Bank Presidents.

Boston’s Eric Rosengren (moderate) was sworn in as President on July 23, 2007 and Chicago’s Charles Evans (inflation dove) took office on September 1, 2007. They were both present on the FOMC when it became clear that the credit crunch was biting in earnest and not letting go, and that the economy was on the brink of a severe recession.

Kansas City’s Esther George (hawk) was sworn in October 1, 2011 after serving as First Vice President at the Bank. She has proven ready and willing to dissent on monetary policy in her turns as a voter on the FOMC.

Cleveland’s Loretta Mester (moderate hawk) moved from head of research at the Philadelphia Fed to take over from Sandra Pianalto in Cleveland on June 1, 2014. There was some speculation she would be a policy hawk in the mold of her former boss Charles Plosser, but her carefully considered views are her own.

Philadelphia’s Patrick Harker (moderate) took over on July 1, 2015 and Dallas’ Robert Kaplan (moderate) was installed on September 8, 2015. Theirs is among the shorter times in office among those nearing retirement age. Both have been active in communicating about policy normalization for rates and the balance sheet.

The remainder of the District Bank President are in a position to hold another full term that runs through February 28, 2026.  The change in President rarely results in a significant change in policy leanings for the District. Most select someone that is well aligned with the culture and outlook of the District and its leadership – past and present.

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