The Federal Reserve is getting some drastic, unsolicited advice.
With the “will they, won’t they” discussion about rate hikes behind them, perhaps market watchers and economists would have scrutinised the Fed’s moves a bit less.
Instead, in addition to questions over the next rate-hike and the path of future moves to come, the Fed has also been dealing with questions about the long-term future of the institution.
Some of this speculation is self-induced, as John Williams of the Federal Reserve Bank of San Francisco spoke to Five Thirty Eight about the future of the central bank, and St. Louis Fed President James Bullard speculated similarly in an interview with Bloomberg.
And now, Andrew Levin, a professor of economics at Dartmouth College and former advisor to Federal Reserve Chair Janet Yellen, has proposed four huge changes he believes the central bank should undertake.
Levin’s suggestions are less in regards to individual policy moves but instead about the nature of how the Fed goes about its decision making.
“However, the Fed’s governance structure was established more than a century ago and no longer ensures that the Fed serves the public interest,” said Levin in a letter published Friday.
“It is time to move forward with a sensible, pragmatic, and nonpartisan approach to Fed reform that preserves its independence…”
His 4 suggestions are:
- “The Federal Reserve Must Be a Fully Public Institution.” Instead of having members of private financial institutions on the regional Fed boards, members of consumer and nonprofit groups should be selected through a public process. This would include a ban on individuals affiliated with financial institutions overseen by the Fed from serving as directors.
- “The Process of Appointing Regional Fed Presidents Should Be Transparent.” The selection of regional Fed presidents is usually done in closed meetings. Instead a list of candidates should be provided for public comment before, and legitimate public input should be considered before selection.
- “Set Term Limits for Fed Officials.” Regional Fed presidents and Board members should be limited to one 7-year term. This is long enough to ensure political independence, while forcing more accountability.
- “Align Fed Transparency and Accountability with that of Other Key Public Institutions.” The Fed should submit to reviews by the Government Accountability Office and fall under disclosure requirements. Additionally, regional Fed banks should be subject to Freedom of Information Act requests and the Fed’s Inspector General instead of just the Federal Reserve Board.
Levin thinks the changes should not stop there.
“These principles are focused on improving the Fed’s governance and public accountability, but there are other potential Fed reforms that also warrant careful consideration, including approaches for ensuring that the Fed’s monetary policy strategy is systematic and transparent,” said the letter.
There have been a lot of suggested changes to improve the Fed, but these may be the biggest we’ve seen yet.