Opinion | The Federal Reserve will finally change!

The Federal Reserve made the most serious mistake in 40 years during the epidemic, allowing "temporary" inflation to worsen and explode. To this day, the Fed is still grappling with the long-term consequences of this mistake.

While inflation has been brought under control under pressure from high interest rates, politicians worry that central banks could tip the economy into recession for no apparent reason. It has become such an issue with such political significance that the debate over what the Fed should do has morphed into a debate about who should make decisions and how.

For example, Senators Elizabeth Warren or Sherrod Brown complain that the Federal Reserve could push the U.S. economy into the abyss in an election year, and lawmakers hope to quickly return to easy monetary policy. They argue that from a political perspective, high inflation is more acceptable than a recession.

The problem now is that if the U.S. economy collapses, both Democratic and Republican lawmakers may take the blame, but not Fed officials. It also makes the Fed’s political independence and accountability key to the current debate. A discussion has quietly begun on how to deal with this problem, which may become the key to affecting the future structure and decision-making of the Federal Reserve.

One option is sweeping institutional reforms. Daniel Katz and Stephen Miran of the Manhattan Institute make this bold suggestion in a recently published paper.

They proposed nationalizing the 12 regional fed banks that make up the Federal Reserve System. These board members, who are appointed through a political process, then appoint local Fed presidents, just like private sector boards. These regional Feds are currently private companies with boards of directors composed of local bank executives and other "notables." Katz and Millan believe that allowing the governor of each state where the Fed is located to appoint board members will help strengthen the political accountability of the Fed.

In addition, Katz and Milan proposed allowing all 12 regional Fed presidents to have a vote at each FOMC meeting. The current approach amplifies the influence of the Washington-based Fed's Board of Governors, since the seven governors also have permanent voting rights. Currently, only the president of the New York Fed has permanent voting rights and can cast a critical vote at every meeting. Other Fed presidents only get a vote every few years, known as a rotating committee, which is valid for one year.

Katz and Millan argue that such reforms would strengthen the Fed's federal structure and promote a greater diversity of considerations in decision-making.

Their suggestions don't stop there. Most controversially, Katz and Millan also suggested allowing the president of the United States to fire council members at will. Although this would make the Fed blatantly politicized, Wall Street Journal reporter Joseph C. Sternberg believes that the Fed is anyway politicizing itself in other ways without making its role clear to voters. responsibility.

At present, the U.S. Supreme Court is gradually moving towards supporting the use of "at-will appointments" for important policy-making positions, which means that these officials may be fired or replaced at any time without being limited by a fixed term. The Federal Reserve may also end up being targeted. Currently, members of the Federal Reserve Board of Governors serve 14-year terms unless they resign.

In 2022, when senators like Kevin Cramer and Pat Toomey proposed structural changes to the Fed, their plans included returning regional Fed appointments to Washington. There is even a proposal to reduce the number of regional Feds from 12 to 5.

A retired regional Fed president has proposed a radically different reform proposal. In 2010, when the Federal Reserve under Bernanke began implementing its most aggressive quantitative easing policy, former Kansas Fed President Thomas Hoenig was the lone dissenter on the Federal Open Market Committee (FOMC) and therefore the only dissenter. The reputation spread far and wide. His proposed reform plan focuses less on who will run the Fed and more on what those officials are allowed to do.

He suggested that Congress limit the Fed's powers beyond raising interest rates, cutting interest rates and expanding the balance sheet to predetermined ranges. In an emergency, the Fed's actions that deviate from the rules should also be approved by Congress after six months. For those who revere the tradition of central bank independence, Honig's proposal may be the scariest.

Despite this, many people still warn of the serious consequences of the Fed being politicized. They believe that American politicians may be very short-sighted and voters may be irrational when voting, preferring that Fed officials be more rational in curbing inflation, even if this action will lead to a certain degree of recession. They even argue that the United States needs to move away from the notion that we can never avoid a recession because economic cycles are a natural part of life that prevent consumers and producers from overextending themselves and balance risks and rewards.

Article forwarded from: Golden Ten Data

标签： CHANGE THE WILL