By Ann Saphir and Lindsay Dunsmuir
– Former Federal Reserve Governor Sarah Bloom Raskin, Michigan State University’s Lisa Cook, and Davidson College’s Philip Jefferson are due to appear before the Senate Banking Committee on Thursday for a confirmation hearing on their nominations to the U.S. central bank’s powerful Board of Governors.
If approved, the three would fill out the seven-member board headed by recently renominated Fed Chair Jerome Powell, with Raskin, as Fed vice chair for supervision, becoming one of the country’s top banking regulators and the central bank’s lead on Wall Street rule-making.
But what does a Fed governor do, anyway, to earn $203,700 a year, and what can the nominees expect when they get behind their desks?
SETTING INTEREST RATES
The first task of any Fed governor is to help set monetary policy, with the goal of keeping inflation in check and maximizing employment in the world’s biggest economy.
Eight times a year, the Fed’s governors and the presidents of the 12 regional Fed banks hold a two-day policy meeting, usually in the two-story chandeliered boardroom of the U.S. central bank’s building in Washington. At the end of each meeting, looked over by a large mural of the United States, they decide whether to raise interest rates, cut them, or leave them alone.
The Fed’s chair and vice chair, along with the president of the New York Fed, lead that process, huddling multiple times ahead of each meeting to assess the economic outlook and sift through policy choices. Fed governors typically spend 20% to 30% of their time on monetary policy, concentrated in an intense one- to two-week period leading up to each policy meeting.
Emergency Fed actions during periods such as the 2007-2009 financial crisis and the COVID-19 pandemic in 2020 threw that schedule out the window, with meetings lasting from early morning to the late evening.
MAKING THEIR MARK ELSEWHERE
A large chunk of time is then taken up by the governors’ committee work, from roles regulating the banking industry to overseeing financial stability, payments, the regional Fed banks, community outreach efforts, the research agenda, and the central bank’s own inner administrative workings.
“Those committees https://www.federalreserve.gov/aboutthefed/bios/board/default.htm are real work,” said Betsy Duke, who was a Fed governor from 2008 to 2013. “You couldn’t possibly go into this job as a one-issue person.”
Governors typically chair a committee and serve on a couple of others, usually according to their expertise and interest. Raskin, for example, would lead the committee on supervision and regulation, driving policy on bank oversight including capital requirements and annual “stress tests,” setting rules governing financial technology firms, and helping shape the Fed’s approach to climate-change risk, among other tasks.
GIVING SPEECHES, DELIVERING PROJECTS
The job also typically includes a range of other work like giving speeches, running special projects or acting as the Fed’s point person for a region or international group. The mix depends largely on the interests of each particular governor.
“There is no playbook,” said Randall Kroszner, a Fed governor from 2006 to 2009, noting there is deference to members who want to shape their own path on the board.
Former Fed Vice Chair Richard Clarida spearheaded a year-and-a-half review of the Fed’s policy framework that helped shape the central bank’s aggressive response to the pandemic. Governor Lael Brainard, recently nominated to take over from Clarida, gave 15 speeches last year, more than any of her colleagues, laying out her thinking on everything from monetary policy to digital currencies to climate change.
By contrast, Governor Michelle Bowman, who chairs a subcommittee on small banks, has largely focused on community banking and related issues.
NAVIGATING FED’S CULTURE
One thing is certain: it likely will take some time for Cook and Jefferson, despite his stint as a research economist at the Fed, to get up and running as they come to grips with the vast apparatus they will help oversee, as well as the idiosyncrasies of the central bank’s culture.
The Fed’s board employs more than 2,500 people, including more than 400 PhD-holding economists, while the wider Fed banking system has almost 23,000 employees.
“That first few months or a year is challenging because the Fed is so complex,” said Andrew Levin, a former Fed staffer who is now a professor of economics at Dartmouth College. “There’s just a learning curve.”
The exception is Raskin, who having served as a governor from 2010 to 2014, will likely quickly slot back in.
The governors’ offices are housed along the same corridor at the Fed’s imposing headquarters in Washington, but government transparency regulations mean only a maximum of three governors are allowed to meet informally to discuss work at any time.
For new recruits, that means no quick way of getting a lending hand from more seasoned colleagues. To comply with the rules, staffers usually brief governors individually or in small groups ahead of formal meetings, rather than all at once, removing the chance to hear fellow governors’ questions and concerns.
“That was a bit frustrating,” said Kroszner, who contrasts it with the semi-open door policy practiced in much of academia and the corporate world. “Sometimes you just want to talk through some ideas with your fellow governors, not in a formal decision-making way, but just bounce ideas and get some views.”
PROVIDING DIVERSITY OF VIEWS
The Fed seeks to reflect the diversity of America in shaping its policy decisions, but has struggled to do so. Fed governors have tended to be men and come predominantly from careers in law, banking and business, although there have been at least three farmers, a member of the military, and a newspaper owner.
The addition of Cook, who would be the first Black woman to become a Fed governor, and Jefferson, only the fourth Black man, would give the board a record four women and make it more racially diverse than it has ever been. But by occupation it would be less so – the additions would bring to four its number of economists.
(Reporting by Ann Saphir and Lindsay Dunsmuir; Editing by Dan Burns and Paul Simao)
