By Howard Schneider
WASHINGTON (Reuters) -Having railed against the “revolving door” between the executive branch and the U.S. Federal Reserve, Council of Economic Advisers chair Stephen Miran may now be walking through it after President Donald Trump nominated him to the Board of Governors of an institution Miran would like to radically overhaul.
In a report last year co-authored by Miran for the Manhattan Institute, the economist proposed a sort of homeopathic cure for a series of ills he felt had infected the central bank, from “groupthink” on monetary policy, to regulatory overreach, to a loss of accountability and a loss of focus on its core mission of fighting inflation.
To regain the benefits of Fed independence from political control, Miran wrote, that independence would have to end.
Rather than 14-year terms and protection from removal once appointed, Miran proposed, Fed governors would serve eight year stints and be subject to removal at will by the president.
“We recommend shortening board member terms and clarifying that members serve at the will of the U.S. president, as well as imposing bans on the revolving door between the executive branch and the Fed,” Miran wrote.
It is unclear how Miran’s proposal for upending the Fed’s current system may effect his chances for Senate confirmation. Some of the Republicans who oversee the confirmation process have spoken in favor of keeping the central bank’s management out the president’s immediate reach, a staple concept of central banking in the developed world embodied in a series of 1930s reforms in the U.S.
But if implemented it would mean dramatic change at the Fed.
Internal Fed budgets would be brought under the Congressional appropriations act as a tool of further political oversight — the Fed currently funds itself from its balance sheet and other earnings — and some of the central bank’s functions outside of monetary policy would be split off into separate parts of the central bank.
Breaking further with the current structure, Miran proposed giving a policy vote to all 12 regional bank presidents, instead of the current five, as a way to balance presidential influence — in effect counting on the 12 regional officials as a counterweight to a president too eager to fire members of the Washington-based board.
The regional banks, however, would themselves come in for reform, with their boards of directors put under the authority of state governors — a system that could create Republican and Democratic-leaning reserve banks out of the country’s divided electoral map.
In Miran’s view, however, that would strengthen accountability in an institution he feels has lost its way.
(Reporting by Howard Schneider; Editing by Daniel Wallis)
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