Abstract
This paper examines the politicization of Federal Reserve (Fed) appointments. In contrast to the extant appointment literature’s almost exclusive focus on ideological proximity as a predictor of Fed nominations and confirmations, I theorize that senators will be more likely to vote against confirmation when their constituents have little confidence in the Fed because it allows them to more credibly defer blame on the Fed for economic downturns. Drawing on novel estimates of state-level confidence in the Fed as well as new common space estimates of senators’ and central bankers’ monetary policy preferences, I demonstrate that when constituents do not have confidence in the Fed, senators are less likely to vote in favor of confirmation regardless of their ideological proximity to the nominee. The results have important implications for the ability to fill Fed vacancies and, in turn, the balance of power between the Fed and regional bank Presidents in the monetary policymaking process.
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Notes
Prior to 2009, the majority of confirmation votes were taken as voice votes with neither a recorded roll call nor record of the chamber’s division. In the two decades from 1988 to 2008, only 5 of the 19 Fed nominations were taken by roll call.
As noted in Adolph (2013, p. 246), the argument often is oversimplified and overstated in the extant research. For one, Rogoff (1985) shows that the social planner can achieve their preferred inflation outcomes better by delegating monetary authority to an individual who is more conservative than the planner him or herself, but not infinitely more or uniformly conservative as is often described. Furthermore, a substantial research agenda building on Toma (1982) and Shugart and Tollison (1983), among others, challenges the notion of central bankers as social planners and highlights the importance of central bankers’ preferences and the bureaucratic systems in which they operate.
The nominations of both Marvin Goodfriend and Nellie Liang met that fate in 2017 and 2019, respectively.
The Democratic senators who had supported Powell’s appointment to the Board previously but opposed his elevation to Chairman include Blumenthal (D-CT), Booker (D-NJ), Feinstein (D-CA), Gillibrand (D-NY), Markety (D-MA), and Warren (D-MA). The opposing coalition was joined by Harris (D-CA) and Merkley (D-OR), who had not cast votes for his 2014 confirmation.
See Ainsley et al. (2020) for a more extensive discussion of the source of sample biases that emerge from the strategic selection of roll call votes.
The method increasingly is the norm in state-level public opinion research and has been shown to produce estimates similar to state-level polls and outperform disaggregation even for much larger samples than the one relied on herein (Lax and Phillips 2009).
All state-level party affiliation data are drawn from Gallup polls in Gallup US Daily.
All estimates of state-level public opinion and replication data are available from the author upon request.
All estimates of macroeconomic policy ideal points and the replication files to produce them are available from the author upon request.
Recall that the reason the macroeconomic policy ideal points from Senate roll call vote records are insufficient on there own is that we need Fed nominees and senators placed in a common ideological space. Just as we cannot estimate individual \(\alpha _i\)’s for the 125 senators not on the banking committee because they do not participate in the committee hearings, nominees to the Fed do not vote on Senate legislation and thus we cannot estimate their ideological positions in that space.
The results can be examined further by looking at second differences, as proposed by Berry et al. (2010) and Rainey (2016), to address the established problems with compression in limited dependent variable models. For senators not in the nominating president’s party, the estimated second difference is \(-0.487\) with a 95% confidence interval of \(\left[ -0.8, -.1\right]\); for senators in the nominating president’s party, the estimated second difference is \(-0.132\) with a 90% confidence interval of \(\left[ -0.26, -0.03\right]\).
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Ainsley, C. Federal reserve appointments and the politics of senate confirmation. Public Choice 190, 93–110 (2022). https://doi.org/10.1007/s11127-021-00919-5
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DOI: https://doi.org/10.1007/s11127-021-00919-5