The Quarles Quarrel Hurts the Fed

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Randal Quarles,

the Federal Reserve Bank’s vice chairman for supervision, last week testified before Congress on the state of the financial system. Something wasn’t right. Mr. Quarles is supposed to be an independent central banker, but he isn’t. Because of presidential mismanagement and senatorial obstruction, he essentially serves at the pleasure of the president.

When the modern Fed was created in 1935, legislative designers wanted to insulate central bankers from undue partisan political interference. Members of the Board of Governors are nominated by the president and confirmed by the Senate to 14-year terms. With seven governors, a 14-year term would permit politicians to exercise their crucial but narrow control once every two years. To keep vacancies evenly spaced, Congress also permitted presidents to nominate new central bankers to fill their predecessors’ remaining terms before facing renomination for their own, 14-year term. In the very rare event that a governor’s term expires before resignation or renomination, he may remain at the Fed until a successor is appointed.

That’s where Mr. Quarles finds himself today. President Trump nominated him last fall to finish a term that expired Jan. 31, a mere three months of service before renomination. Mr. Trump has already nominated Mr. Quarles for a full term. Senate Democrats have delayed that appointment, so that Mr. Quarles, who is highly qualified and won 65 votes for his first nomination, is denied the statutory protections and public assurances of insulation from partisan politics that central bankers need to function. At any time, Mr. Trump may withdraw his nomination or the Senate may reject it. He is completely dependent on politicians for his continued position as the nation’s key financial watchdog.

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There is no reason to continue to deny Mr. Quarles that protection. Mr. Trump’s critics win no points for creating the appearance of an even more partisan central bank. As for the president, he could easily have avoided this debacle. There was no need for such a short term. Given the vacancies available, he might have nominated Mr. Quarles for a two-, four- or six-year term. His failure to do so may suggest a desire to exert undue control over the independent central bank—or, much likelier, a lack of awareness of the complexity of the Fed’s governance structure.

In any case, it is time to declare a truce and restore both political accountability and independence to the Federal Reserve. Each nominee should face a process of substantive vetting so that unqualified or inappropriate nominations should be rejected, qualified ones quickly approved. No one wins with the present half-baked procedure. The independence of the Federal Reserve is, at the best of times, a tradition born of experience and partisan cooperation. Working to restore those traditions will benefit us all.

Mr. Conti-Brown, an assistant professor at the University of Pennsylvania’s Wharton School, is the author of “The Power and Independence of the Federal Reserve” (Princeton, 2016).

Appeared in the April 24, 2018, print edition.



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