In his book “The Power and Independence of the Federal Reserve,” Peter Conti-Brown argues that Federal Reserve Bank Presidents are, in effect, important government officials, by virtue of voting on monetary policy, and so (a) should be chosen in a democratically accountable way and (b) to accord with the constitution, should  be either appointed by the President of the United States and confirmed by the Senate, or treated as “inferior officers.”

I am like Justin Fox and many others at a 2015 Brookings event that Justin reports on in thinking that the Federal Reserve Bank Presidents voting on monetary policy in a way close to the way things are now is good for monetary policy. In particular, it helps in allowing a diversity of views to make its way into monetary policy. Crucially, each Federal Reserve Bank President has the staff to really investigate different angles on monetary policy. And indeed, one of the most valuable reforms would be to give more staff and more independence of the Governors in Washington DC from the Chair of the Fed–as well as higher salaries more in line with the Federal Reserve Bank Presidents so that they would be less tempted to quit as Governors after only a few years. 

Despite thinking that the current de facto status of Federal Reserve Bank Presidents is good for monetary policy, and that indeed that the Governors’ status should be raised by giving them some of the attractive job characteristics that the Federal Reserve Bank Presidents have, I take the constitutional issue seriously. I wrote to Peter by email of an idea of how to make the Fed’s governance structure constitutional by clarifying that the Federal Reserve Bank Presidents’ are indeed inferior officers, de jure, and indeed making their appointment more consistent with being inferior officers, but otherwise keeping the role of Federal Reserve Bank Presidents essentially the same as now. Here is what I wrote, with a few words added for clarification:

I think it would be very interesting to investigate the extent to which–even without new legislation–a strong Chair, working with the Fed’s Chief Counsel, could implement the “Federal Reserve Bank Presidents as inferior officers” reform. 

As far as removal goes, I think a legal report could take your line that constitutionally, as inferior officers, the bank presidents must be removable by the board–whether the statute said so or not–and that that was the legal position of the board would take to the extent the question of whether the presidents were inferior officers or whether a president was removable ever came up. This would presumably be associated with reassurances that the board had no intentions of removing any president any time soon. It would cause some kerfuffle, but that would die down reasonably soon after repeated assurances that the board had no intention of actually removing any president any time soon, but that it was just forced to the conclusion of its ability to do so by the law.

As far as appointment goes, the rules already give the board a substantial role in the appointment process. As I understand it, it already requires both the assent of the Board of Governors and the assent of the board of the particular federal reserve bank to make a president. The Board of Governors could easily be much more assertive in this process than it is. And indeed I think the trend is in that direction. For example, I heard that the FRB took a big role in the selection of the SF Fed Bank’s current president. Of course, the place to start would be for the Board of Governors to be extremely assertive in the choice of the president of the NY Fed.

I disagree with you about bank presidents voting on the FOMC. Because they have their own staffs and an attractive job that they will continue in for some time, they provide important diversity in viewpoints–both on the hawkish side and on the dovish side. I think greater Board of Governors assertiveness in the selection of bank presidents solves the most important institutional design problem from the standpoint of good policy outcomes, while simply asserting that the constitution overrides the statute so that the Board of Governors can remove bank presidents if it comes to that solves the constitutional problem.

Let me add this: if, to smart lawyers, this interpretation of the law seems right, one can imagine the chief lawyer of one of the regional Feds replying to a query from its president by saying:

I have good news and bad news.

The good news is that you are constitutional.

The bad news is that you can be fired.