Fed Board Staff and the Chair

There has been an evolution at the Federal Reserve Board involving how the staff communicates with governors, especially the Chair, and the evolution has taken a discrete step further under Powell. The old system of so-called “barons”—division directors—that substantially controlled the flow of information to governors has given way to a less formal approach where the Chair can quickly get responses from staff.  This means a speedier flow of information and interaction with a wider range of staff. This builds on the relationship and interaction with staff that has marked Powell’s tenure as a governor. This more continuous and less-formal interaction with Ph.D. economists makes sense for Powell, given that his professional background is different than that of a Ph.D. economist. But even a Chair with a Ph.D. would be well served by reforms in this direction. He will be prepared on the topics and research relevant to FOMC decisions as well as or better than his colleagues. That can only increase his influence within the FOMC. 

Information Flow Under the Barons 

When I was at the Fed, the interaction between the Board and the research staff was dominated by the so-called “barons,” the directors of the key research divisions. When I arrived, I said I wanted to consider having a staff economist working directly for me, but was discouraged by the barons, who said that this would cut me off from them. I followed this advice, and it would out well, but only because I managed to often fill my office with staff economists without the division directors. While that gave me a better flow of information,  staff mostly seemed constrained to toe the party line. Perhaps most importantly, information on important topics filtered out of the divisions only slowly, after careful vetting by the directors.  

Speedier and Less-Formal Internal Communication 

Communication from the staff loosened up under Bernanke and Yellen, with greater emphasis on hearing alternative points of view. But Powell has taken this a very large step forward, formalizing the informal process! 

Each division has assigned one or two senior staffers to respond to Powell’s requests for information,  sometimes directly and sometimes by identifying specialists within the Board staff to come and chat informally with the Chair. 

Faust and Bomfim Appointed Special Advisers to the Chair 

Powell has chosen two special advisers that report to him directly: Jon Faust, a former senior staffer at the  Board, and Antulio Bomfim, who was my partner for many years at Monetary Policy Insights before he returned to the Fed as a senior adviser in 2016. Faust served in a similar position as a special adviser to  Bernanke and Yellen from 2012 to 2014.  

Implications for Powell and the FOMC 

This process ensures that Powell will be as well prepared, and likely better prepared, for FOMC meetings than other governors and presidents. We have said that Powell was likely to be less influential within the Committee  on monetary policy matters than Bernanke and Yellen, whose judgment was highly respected because he did  

not come to the Board as an elite economist. Of course, they also depended heavily on staff input. In any case, the fact that they were clear intellectual leaders within the FOMC gave them the ability not only to build and communicate the consensus but also to shape it. We have said that Powell might not like to do more than build a consensus. To be sure, Powell had already earned respect within the Committee for his preparation for meetings, which reflected the deep relationship he had already built with the staff. But this latest change will take that process a step further.

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