Federal Reserve Board of Governors and Its Members

Who Really Controls the Fed?

Federal Reserve Board of Governors
A rare photo of four Federal Reserve Board Chairs: Ben Bernanke (R), Alan Greenspan, Paul Volker (C) and Janet Yellen (L) during the Federal Reserve centennial commemoration at the Federal Reserve building, on December 16, 2013 in Washington, DC. Photo by Mark Wilson/Getty Images

Definition: The Federal Reserve Board of Governors is the governing body that guides the U.S. central bank. The Board consists of seven members who each serve fourteen-year terms. The president appoints them, and the U.S. Senate confirms the appointments. 

The Federal Reserve System is responsible for monetary policy that controls the money supply and interest rates. Its dual mandate is to control inflation and reduce unemployment.

In addition to the Board, the Fed consists of the 12 regional Federal Reserve Banks and the Federal Open Market Committee. The Fed banks provide services to the nation's commercial banking sector. The FOMC sets monetary policy.

The Fed has 1,800 employees that support the Board. Its address is 20th Street and Constitution Avenue N.W., Washington, D.C. 20551. 

Chair and Vice-Chair

The Board's Chair is Janet Yellen (February 3, 2014 - February 3, 2018). She was Vice Chair of the Board from October 4, 2010- February 3, 2014.  Before that, she was President of Reserve Bank of San Francisco from 2004-2010. Yellen has been aprofessor of economics since 1980. She is more concerned about unemployment than inflation. That makes her favor expansionary policy and keeping rates low. That's called "dovish." Board members that are hawkish prefer contractionary policy. They would rather raise rates because they are more worried about inflation.

 

The Chair of the Board is also the Chair of the FOMC. The Chair meets with the President, the Secretary of the Treasury and Congress. The Chair is a member of the International Monetary Fund, the Bank for International Settlements, and the G-7 and G-20 as finance minister.

The Vice Chairman has been Stanley Fischer since May 28, 2014.

He was supposed to serve until January 31, 2018, but announced he would resign in October 2017. He was governor of Israel's central bank (2005 - 2013), vice-chairman of Citigroup (2002 - 2005). Fischer was deputy managing director of the International Monetary Fund (1994 - 2001), chief economist of the World Bank (1988 - 1990) and professor of economics at MIT (1977 - 1999). He is equally concerned about unemployment and inflation, which makes him a moderate. 

Members

Board members serve staggered terms. That means a new one is appointed every two years. That keeps the Board independent of politics. If that schedule is followed, then no president or Congressional party majority can control the board. But two board positions have remained vacant since the financial crisis

A third became vacant in April 2017. Daniel Tarullo was supposed to serve until January 31, 2022, but resigned as of April 5, 2017 He was a law professor at Georgetown University and held several senior economic positions for President Clinton (1993 - 1998). He increased bank regulation. He is dovish. 

He was replaced by Randy Quarles. He was President Trump's first appointee, and was sworn in on October 13, 2017. He will be the Vice Chairman for Supervision until October 13, 2021.

He supports bank deregulation. He was a managing director at Cynosure Group and the Carlyle Group, and a Treasury official under President George W. Bush. Rather than being dovish or hawkish, he is in favor a using strict guidelines that determine when the Fed changes rates.

Mr. Quarles will be joining the other two board members:

  • Jerome Powell (May 25, 2012 - January 31, 2028) was a visiting scholar at the Bipartisan Policy Center, a partner at the Carlyle Group (1997 - 2005), and a Treasury official under President George H.W. Bush. He is dovish. 
  • Lael Brainard (June 16, 2014 - January 31, 2026) was a senior Treasury official (2010 - 2013), a senior member of the Brookings Institution (2001- 2008), and Deputy National Economic Advisor to President Clinton. She was a professor of economics at the MIT Sloan School of Management (1990 - 1996). She is dovish.

    Trump's Appointments to the Board

    President Trump needs to fill the three currently vacant positions. He also must appoint a Fed chair in February 2018  and a Vice-Chair in October 2017. If he fills all five positions, he will have a majority of the Fed board, effectively controlling it.

    Trump is considering four appointees for the Chair position. He may reappoint Yellen. But she is normalizing interest rates, which Trumps prefers to keep low.

    Some analysts believe Trump will appoint former board member Kevin Warsh. He agrees with Trump's emphasis on bank deregulation. But he is hawkish, and Trump is not.

    Trump is impressed with Stanford economist John Taylor. But he is the author of the Taylor Rule, which automatically raises rates as unemployment falls and inflation rises. The Rule suggests a Fed funds rate of 3 percent, double its current rate. 

    Also in the running is current board member Jerome Powell and Trump's chief economic advisor Gary Cohn. 

    For the other positions, Trump is looking for at least one candidate with community banking experience. Trump hasn't found anyone who is willing to divest their holdings in all banks. Congress made that a requirement two years ago. That's holding the Trump administration from finding candidates willing to accept the nominations. 

    What the Board Does

    The Board has four primary functions. First, it guides monetary policy. All Board members sit on the FOMC. The Board has the majority of seats on the FOMC, so it effectively controls all decisions. It does listen to the input from the other members since they are presidents of the member banks. The FOMC meets eight times a year to set the target for the fed funds rate and to implement open market operations.  The Board alone sets the discount rate and the reserve requirement for member banks. Find out more about the Federal Reserve's tools.

    Second, it analyzes economic developments. It releases the Beige Book monthly. It provides the monetary policy report twice a year (around February 20 and July 20). It reports its findings on the state of the economy to Congress. Specifically, the Chair presents separately to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services.

    Third, the Board issues regulations for the general banking industry, and for Federal Reserve member banks. It enforces those rules for the Federal Reserve member banks only. These include 900 state banks, that are members of the Federal Reserve System, and 5,000 bank holding companies. The Office of the Comptroller of the Currency supervises national banks. The Federal Deposit Insurance Corporation supervises state banks that aren't Federal Reserve members. This fragmentation allows banks to choose their supervisor by determining what kind of bank they want to be. That's one of the complexities that created the financial crisis. 

    Fourth, it manages the U.S. payments system. The banks it supervises clear checks, process electronic payments and distribute cash. 

    Meetings

    The Board meets twice a month. It addresses all regulatory and monetary policy. You may attend any open session. Find out more at the Board's meeting website.  (Sources: "How Is the Federal Reserve System Structured?" Federal Reserve."Introduction to the Board of Governors," Federal Reserve Bank of St. Louis. "What Is the Purpose of the Federal Reserve System?" Board of Governors of the Federal Reserve.)