With the nomination of Judge Sonia Sotomayor to the Supreme Court, Washington now whips itself into the usual confirmation frenzy. By contrast, when a president offers nominees to the Federal Reserve Board, there is little, if any, recognition and debate.
I predict Fed nominees will soon face bruising confirmation battles similar to those of judicial nominees. The battles won't be as intense; a spirited debate about whether a Fed nominee is a Keynesian or a monetarist will never capture public interest in the same way that a debate about a judge's stance on affirmative action does. But there will be more scrutiny.
A Fed nominee's thinking about the economy surely influences the lives of more Americans than a judicial nominee's thinking about the narrow, hot-button legal issues in the headlines.
And remember that court nominations did not become protracted battles until the judiciary took center stage in a number of controversial issues in the early 20th century. As the Fed projects itself into uncharted waters, it too can expect to draw more public interest. After some of the regulatory shortcomings of the Greenspan regime, the era of complete deference to the Fed is over.
Why have the nominations of the seven Fed governors merited so little attention thus far in our history?
First, part of the frenzy around Supreme Court nominations is due to the fact that these federal judiciary posts involve rare, lifetime appointments. Conversely, Fed governors are appointed for 14-year terms and many choose not to serve their entire term.
Second, many decisions by the Federal Open Market Committee are made unanimously and quietly, whereas Supreme Court decisions are often bitter 5-4 affairs. The Fed is meant to be a less argumentative arena, where the near unanimity of decisions supposedly carries more weight with markets.
Also, Fed governors are generally overshadowed by the Fed chairman. The only checks on the chairman are a shorter term (four years, rather than 14) and the remote possibility that colleagues could deny him or her the chairmanship of the Federal Open Market Committee.
Fed Chairman Ben Bernanke deserves great credit for the sea change of encouraging internal debate within the Fed itself, as well as for making the Fed more transparent.
As a body of study, the decision-making of central bankers is relatively new. It was only in 1995 when the Open Market Committee decided to make its decisions public. Before 1995, the public had to monitor credit markets to interpret how much the Fed had cut or raised the federal funds target rate. It will seem quaint to younger generations that Fed watchers once had to wait very much like observers outside the Vatican looking for white smoke to discern the election of a pope.
Even with new transparency, central banking remains draped in mystery, and no one likes this sense of mystique more than central bankers themselves.
The extraordinary events of the past year and a half should underscore the need for closer examination. The Fed has assumed awesome new powers, bailing out all manner of financial institutions and serving as a firewall when the Treasury Department or Congress could not act as quickly.
In addition, if the congressional gridlock over long-term economic priorities continues, the Fed will have an even larger vacuum to fill.
Though it has exercised these new powers with great care so far, the price of power is accountability.
One of the undeniable tenets of modern central banking is the need for independence from the political branches of government. The economist Allan Meltzer has made this case better than anyone. So it would not be in the public interest for Fed nominees to be subjected to the withering inquiry accorded to court nominees. But the duties of Fed governors are important enough to warrant more public debate than currently exists.
