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Two New Guys

Two appointments at the Federal Reserve last week. One I’m certain you heard about and another one I’m just as certain you did not hear about. On today’s episode a quick recap - the new Chair of the Federal Reserve and the new Secretary of the FOMC. 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.

Two appointments were made at the Federal Reserve last week. One I’m certain you heard about and another one I’m just as certain you did not hear about. On today’s episode a quick recap of the new Chair of the Federal Reserve and the new Secretary of the FOMC.

The New Chairman

As has been reported in most major news outlets, the nomination of Jerome Powell as the next Chair of the Federal Reserve was a safe one. With Powell, Trump could simultaneously, put his name on the top job at the country’s central bank while still maintaining the successful policies of its current Chair Janet Yellen. Financial markets were little changed the day of the announcement as well as the days leading up to the announcement when it was leaked that Powell would be chosen.

Powell has consistently voted with Yellen since his nomination to the Board of Governors in 2012 by President Obama. He is a Republican with a legal background working in investment banks, the George H W Bush Treasury, and for the 15 years leading up to his appointment to the Board of Governors at private equity funds (including 8 years at the Carlyle Group - the same company where Randal Quarles, the newly appointed Governor). It is widely viewed that Powell will carry on the current policy path.  

The next big question is will Yellen leave the Board of Governors completely in February when she is no longer the Chair? Remember that the Chair of the Federal Reserve, a renewable 4 year position, is also a Governor, a 14 year position. So if the term of a Chair ends and the person still has time remaining in their 14 year Governor position, they have the option to stay on the Board. In Yellen’s case her term as Chair will end in February 2018; however, she could stay on as a Governor until her 14 year term ends in 2024.

Now before we move onto the second new appointment at the Federal Reserve from this week I do want to recommend two fascinating articles by Peter Conti-Brown, a professor at Wharton. For long time listeners this name will sound familiar. Conti-Brown is the author of the excellent book, The Power and Independence of the Federal Reserve. Anyways, in the first recommended article Conti-Brown describes the process that President Trump, the former Reality TV Star, took in choosing Jerome Powell as Fed Chair. In it he outlines, “what we won and what we lost in the Trumpian Procedures and the Trumpian Outcomes.”

In a second article, in the same Notice and Comment blog from the Yale Journal on Regulation, Conti-Brown outlines a brief, 60-year history of Fed Chair turnover. It’s a fascinating read and an open letter to Janet Yellen asking her to stay on as a Governor.

And now onto the second, far-less reported change to the Federal Reserve this week.

The New Secretary

James A Clouse was named the new Secretary of the Federal Open Market Committee (the FOMC, the committee that votes on interest rate moves and other major monetary policy decisions). Although clearly not as flashy or as powerful a position as Chair, the role of FOMC Secretary is surprisingly important.

Along with his role directing the office of the FOMC Secretariat, Clouse will have many responsibilities when he assumes the new job on November 26th. The Secretary is responsible for the minutes and transcripts of all FOMC meetings. These documents become the official record of the Federal Reserve and they literally move markets.

I remember in college, when I was first introduced to the Bloomberg Terminal, an investing and news platform that takes the shape of a multi-screen computer that costs tens of thousands of dollars a year. Anyways, one of the first features I was shown by my Money and Banking professor was a tool used to analyze the most recent Federal Reserve announcements, transcripts, and meeting minutes. I was amazed at the detail of this tool. You could dive into potential market effects of the document. Bloomberg’s algorithms would bring up recent documents and highlight similarities and differences. This was also during the early days of my introduction to Central Banking and I was dumbstruck by the amount of time and energy that people paid to Central Banks. It sounded like an institution worth looking a bit more into. It’d be fun to sit down next to that younger version of myself and say, “in a few years you’ll be so into the world behind these documents and the institutions that wrote them that you’ll spend dozens of hours a week making a podcast about them, for free, on your spare time.”

Ok, closing the door on memory lane and bringing us back to the present. The point of the Bloomberg Terminal experience was simply to emphasize that the documents that central bankers create and publish are incredibly important, and that’s relevant today because in a few weeks a new man will be given the responsibility for the format and construction of said documents.

I’ll conclude my comments about the Secretary of the FOMC by referencing a fun speech given by Governor Laurence Meyer entitled, “Come With Me to the FOMC”. The fun rhyming title is a hint to the light, easy to read spirit of this speech. The name Meyer will sound familiar to listeners who paid attention to the episode, “The Disclaimer” where we dived into the story behind all Fed officials including the following disclaimer at the beginning of all of their speeches, “My comments are my own and don’t reflect those of the System or my colleagues on the FOMC.” Meyer’s book, which I sourced for the disclaimer episode, was a result of this speech. Meyer got such a large quantity of feedback about his talk, “Come With Me to the FOMC” that he decided to expand upon it and into a book.

In the speech Meyer goes into great detail about how the FOMC meetings actually work, and a central figure in these meetings is the secretary.

Meyer says that the secretary always sat next to the Chairman, Alan Greenspan at the time. He was responsible for preparing and taking notes of the meetings, translating those notes into meeting minutes, and then approving the final published minutes. When it came time to vote on the interest rate decision, the secretary would read the directive upon which the committee would be voting on that day. The secretary would also provide input into the sticky word choice debates that arise when writing central banking documents. He would offer commentary around the differences between the words like “slight, somewhat, or moderate”. Finally the secretary would take and tally the official vote.

So over the next few weeks and months the Federal Reserve will see a change in leadership. Jerome Powell will be taking the helm of the nation’s central bank, and he will have James Clouse by his side taking, preparing, and delivering the notes.  

Conclusion

As always, I can be reached for comments, feedback, or questions on twitter or via my website www.thebanksterpodcast.com. If you’d like to receive the shownotes to every episode the morning every episode is published go to the website and sign up at the bottom of the home page. This week I’ll include direct links to Professor Conti-Brown’s two excellent pieces as well as the famous, “Come With Me to the FOMC” speech from Governor Meyer.

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!

Policy Tools

Policy Tools

Eccles #4 - Becoming Fed Chairman

Eccles #4 - Becoming Fed Chairman