Do Politics Have a Place in Fed Appointments?

Some panelists expressed what is now a longstanding consensus view in economics about central bank independence. As Eric Maskin at Harvard said, “Good monetary policy is largely technocratic, not political.” Robert Shimer at Chicago added, “Independence of the central bank is the cornerstone of good monetary policy.”

Others were explicit about the threat of a stronger influence of electoral politics on monetary policy-making. David Autor at MIT commented, “Monetary policy has an important public mission—and it’s not about electoral politics.” Maurice Obstfeld of University of California at Berkeley observed, “Sound central bank policy requires a long-term perspective that is insulated from electoral-cycle pressures.” And Robert Hall at Stanford wrote, “The obvious danger is an unwise monetary expansion timed to win an election.”

Two experts highlighted the word “primarily” in the statement to which the panel responded. Darrell Duffie at Stanford noted that “‘Primarily’ political implies (a) lower priority on skill at monetary policy, (b) could place weight on political over economic outcomes.” Chicago Booth’s Anil Kashyap stressed: “‘Primarily’ is key here. Diversity of thought and experience is good; picking central bankers because of political fealty is a very bad idea.”

Daron Acemoglu at MIT concurred with the statement but expressed an additional concern about Fed appointments: “Absolutely. But we should also worry about other things, including links to the financial industry.”

Larry Samuelson at Yale returned to the central point of the statement: whether monetary policy outcomes will be worse in future with appointments made on the basis of political views. He concluded, “The Fed derives its strength from its apolitical nature. A politicized Fed will not be nearly as effective.”