Far-left Democratic Congressman, Barney Frank, co-architect of the Dodd-Frank financial reform legislation, is pushing to curb the influence of the regional presidents of the Federal Reserve system. He believes that their votes are skewing Fed policy excessively towards containing inflation instead of towards promoting employment. Ideally, Barney Frank would like to dis-enfranchise the regional members of the Fed. Failing that, he would like the Regional Presidents to be nominated by the President subject to confirmation by the Senate.
Frank is correct with respect to his fear but completely wrong, as always, with respect to his policy response. The primary role of the Fed is and should remain that of containing inflation. By containing inflation it will set the scene for job creation. Barney Frank does not understand the nature of stagflation – the inevitable consequence of stoking inflation as a misguided mechanism for firing economic growth. It would seem that Barney Frank has no taste for economic history and no memory of the 1970s.
Normally 12 votes are cast in meetings of the Fed open market committee, the Fed’s policy-making body. Seven belong to the chairman and his board, one to the head of the New York Fed, and four, by rotation, to presidents of the other regional Feds. With fewer than half the votes on the FOMC, the regional presidents have accounted for 90 per cent of recent dissents, urging greater caution on monetary stimulus than chairman, Ben Bernanke and his board prefer. Interestingly, members of the Fed board rarely dissent from its chairman. Voting within that group follows the USSR polit-bureau principle.
The regional Feds represent an interesting public-private hybrid. Their members are banks-shareholders of a sort, with voting rights. Inevitably, this constrains their independence from banking interests. But at least it isolates them from Washington politics.
Given a choice between a fully politicized Federal Reserve system or a geographically diversified system containing some representation of the financial services industry, only a progressive socialist like Barney Frank – I am being kind in not fingering him as further left than that – would opt for the former.
In an election year, Barney Frank has little chance of succeeding in this mission. But he surely never stops trying!