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Centralverse Q&A, Round III

Another set of great questions on today’s round of Centralverse Q&A: Who is in the running for Chair of the Federal Reserve? And, briefly, what does the Federal Reserve Chair do? If you have questions you’d like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.

Introduction

I am Alexander Bagehot and you’re listening to The Bankster Podcast, the only podcast dedicated to the fascinating and ever more consequential world of central banking.

When the idea for the Centralverse Q&A segment came to mind I thought I would use it occasionally when an especially interesting question arose, or I found a fun bit of information that might not fit in a longer, story like format. However, as evidenced by the title of today’s episode, I’m now on the third episode of Centralverse Q&A. It has turned out to be an excellent format to share insights into the workings of the Fed and why they matter today.

But before we jump into the two questions for Round III I do want to reiterate a recommendation that I first gave clear back in Episode 4 of Season 1 of The Bankster Podcast. For long time listeners that was the episode where I described the gold held by the Federal Reserve. I won’t repeat the story of the Fed’s gold reserve here, you should go back and listen to episode 4 again to get the whole story; however, I actually had a chance last week to visit the gold vaults in the subbasement of the New York Federal Reserve, deep in the bedrock of Manhattan. It was a phenomenal trip for my wife and me, and to see the piles and piles of bright gold bars, stacked behind turquoise colored metal bars was something I will never forget.

And one more PSA while I’m on the topic of Federal Reserve Building visits and tours, the Chicago Architecture Foundation does an open house weekend in the Windy City every October. Hundreds of skyscrapers, antique mansions, houses of worship, and other interesting buildings normally closed to the public are opened for just one weekend. In the city that gave birth to modern architecture it’s a great reason to come to the city, period. But on top of that the Federal Reserve Bank of Chicago is one of the buildings that opens its doors. You have to go through enough checkpoints and scanners you feel like you’re at the airport, but if you don’t mind a pass through the heightened security, you can see the beautiful Great Hall of the oldest building still in use by the Federal Reserve in the whole country.

Ok, enough announcements. Let’s dive into some Centralverse Q&A’s.

Question #1

Who is in the running for Chair of the Federal Reserve?

Background #1

On Friday, September 29, Trump told reporters that, “I’ve had four meetings for Fed Chairman, and I’ll be making a decision over the next two or three weeks.” Well, the release of this podcast is Friday, October 13, (also my parents anniversary - happy 29 years mom and dad - may you celebrate two more sets of 29!). Anyways, today is exactly two weeks from Trump’s statement, and although it doesn’t look like we’re within days of the announcement (Trump rarely actually delivers on his “this will happen in two weeks”) there are talks and statements about who is in the running and the nomination will have to come pretty soon because the new chair will begin his or her four year term in February 2018. So with that I’ll give a short and long answer to the question, “Who are these potential Fed Chair candidates?”

Short Answer #1

Janet Yellen, current Chair (she could be reappointed for another 4 year term)

Jerome Powell, one of the current Governors

Kevin Warsh, former Governor

Gary Cohn, current Economic Council director

John Taylor, current Stanford Economics Professor (he’s the one who wrote the famous mathematical formula for monetary policy)

Long Answer #1

For this question’s Long Answer I’m actually going to refer everyone to the show notes where I have a link to an excellent article that provides the perfect long answer to this question. Large news organizations and universities, most notably the WSJ, Bloomberg, and the University of Chicago, occasionally conduct surveys of economists’ viewpoints on current political and economic events. Bloomberg has done four surveys asking the same group of economists who they believe Trump will choose as the Chair of the Federal Reserve (not who they think should be the Federal Reserve Chair but rather who they think Trump will actually nominate). The article has excellent, two paragraph summaries of the life and work of each of the candidates. They also have a fun graphic that shows how the economist’s views have changed over the last five months. You can see who has increased in likelihood and who has dropped off and below the infographic you can read a relatively brief bio of each one.

As I mentioned, to get a nice, concise summary of each episode, including links to all of the great resources that I use creating each episode, head over to my website, www.thebanksterpodcast.com and sign up for the show notes. I only send one email per episode and it’s sent at the same time the podcast is released. It’s a great way to take one step farther into the Centralverse.

Question #2

So now that I have given you a brief introduction to the current candidates, it begs the question, “What does the Chair of the Federal Reserve do?”

Short Answer #2

  • Leads the Monetary Policy efforts of the country’s central bank.

  • Reports to both the Senate and House of Congress twice a year.

  • Meets with the Treasury Secretary on a regular basis.

  • Sits on intergovernmental councils that coordinate regulatory and supervisory efforts.

  • Serves as figurehead of the employees of the Federal Reserve System, which include the 12 Reserve Banks and the Board of Governors.

  • Works with leaders of foreign central banks during times of panic.

Long Answer #2

  • One of the governors.

  • Four year term.

  • Reappointed as many times within 14 year term (plus any extra time from position being filled).

  • FSOC (Financial Stability Oversight Council, define sifi’s)

  • FFIEC (Federal Financial Institutions Examination Council, collection of financial data)

  • Meet with Treasury Secretary regularly. The chairs complete calendar is actually publicly available and in a phenomenal infographic produced by the Wall Street Journal’s Central Banking Pro team. Using a Freedom of Information Act request the Journal gets access to the Chair’s entire schedule. It’s fun to scroll through and see how the most powerful woman in the world does in a typical day.

  • Figurehead (like a monarch) of twelve districts 12,000 employees. In fact it’s one of the other governors that chairs the “Committee on Bank Affairs”.

  • Work with international central bankers (Alchemists book with Ben Bernanke, Jean-Claude Trichet, Mervyn King)

  • Runs the FOMC (sets the agenda, decides what the vote is on, gets the final say, tries to gather consensus, lowest interest rate, other tools: QE, emergency lending, swap lines, balance sheet)

 

And that concludes the third round of Centralverse Q&A. Whether Trump announces his pick for the next Chair this afternoon, next week or in months to come, you will now be familiar with the name and a tiny bit of background info about the chosen nominee. Then, when that nominee (assuming they are confirmed by the Senate) begins his or her term in February of next year, you’ll know a little more about their what a few of their responsibilities will be!

Conclusion

If you have questions you’d like answered on the podcast send them in. As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com.

Today’s episode was written, edited, and produced by me, Alexander Bagehot. Thanks to all of you for listening, and I’ll see you next time on The Bankster Podcast!

 

 

Eccles #4 - Becoming Fed Chairman

Eccles #4 - Becoming Fed Chairman

Centralverse Q&A, Round II

Centralverse Q&A, Round II