Council of Economic Advisers (CEA): Role and Effect on Economy

Greenspan Bernanke
••• Ben Bernanke (R) flanked by Alan Greenspan (L) speaks after being nominated by U.S President George W. Bush to be Federal Reserve chairman October 24, 2005 in Washington, DC. Photo by Mark Wilson/Getty Images

Definition: The Council of Economic Advisers (CEA) is a group of distinguished economic analysts. It advises the U.S. President on fiscal policy. It does not advise the nation's central bank on monetary policy. It does, however, clearly express its point of view.

The President appoints the members, and the Senate approves them. The members are usually high-level economic professors. They take a temporary leave from their regular university appointments to serve the President.

Here's a list of former members.

The academic background of CEA members provides a high level of technical sophistication. For example, they know how to create and run computer programs that model the economy. They can forecast growth, inflation, and employment with these models.

They can also see what happens if they change certain assumptions.For example, they can tell you what would happen if more money was spent on early childhood education. The Council can also tell you what happens if nothing is done about climate change.

This expertise and fresh perspective provide an alternative viewpoint for the President. At the same time, these advisers usually share the current Administration's political beliefs and goals. They act as advocates within the federal government and Congress.

The current and two former Federal Reserve Chairmen chaired the Council of Economic Advisers. These include Janet YellenBen Bernanke and Alan Greenspan.

Reviewing the list of CEA chairs might give you an idea of who will be the next Fed Chair.

A staff of economists supports the CEA. They are specialists in areas like international trade, labor, and healthcare. See current job openings and internships.

What Is the Role of the CEA?

The CEA was created by the Employment Act of 1946.

Congress directs the CEA to assist the President in these five specific ways.

1. Prepare an annual Economic Report, released in February. That gives the economic background that supports the President's annual budget. It explains what's happened to the economy over the past year. It also forecasts growth for next year. 

2. Review economic indicators. Each month, they provide the Congressional Joint Economic Committee a summary of 11 crucial statistical areas. First is Gross Domestic Product, which measures total economic output. Next is income and employment. That's followed by production and business activity. It reports on inflation using the Consumer Price Index.

The CEA report also includes financial statistics, like the size of the money supply and credit. It also reports on security markets, Federal finance, and international statistics. Within each of these areas are many related indicators. Here are the current and past reports. The CEA must also report to the President if trends impact current policy.

3. Review federal agencies. It recommends corrections to the President if their activities don't support economic initiatives

4. Develop specific policies on a regular basis. By law, these policies must promote free competitive enterprise.

They must also suggest ways to avoid future economic crises or end existing ones. Finally, the recommendations must also maintain employment and production.

5. Prepare economic research reports. These reports cover a broad range of current issues. For example, the CEA suggested new ways to measure GDP. It looked at what happened to states that didn't expand Medicaid as part of Obamacare. It also reviewed the benefits of international trade. See the latest reports.

How the CEA Affects the U.S. Economy

The CEA provides sophisticated guidance to the President as he formulates economic policy and prepares the annual budget. 

The Council of Economic Advisers website provides sophisticated economic forecasts and reports. Use them to understand the economy, and better plan your personal finances.