Interesting FOMC fight developing over the powers of the Chairman versus the governors:

“Federal Reserve’s interest-rate target is getting close to zero, and so is the power of the Fed’s regional bank presidents.

The district chiefs’ authority over borrowing costs has been marginalized in the past two months as Chairman Ben S. Bernanke and the Fed Board of Governors in Washington made their own decisions on emergency measures to flood the economy with cash.

“The Board has usurped authority,” said William Poole, former president of the St. Louis Fed and now a senior fellow at the Cato Institute in Washington. “This dramatic change in policy direction has not been announced or even acknowledged.”

Bernanke must now try to bring the Federal Open Market Committee, which includes district presidents and Fed governors, along as he turns to more radical strategies, such as buying Treasuries to drive down long-term rates. A lack of consensus at next week’s FOMC meeting could result in muddled communication that confuses investors and undermines confidence.”

You may not know this, but Greenspan had his wings clipped in the early 1990s when his Board revolted against his inter-meeting rate cuts:

“Chairman Greenspan found himself hobbled by a near open revolt of FOMC governors. The Fed “curtailed the authority of its chairman, Alan Greenspan, to reduce rates on his own” in between meetings.

Greenspan cut rates half a point just a few days prior to the February FOMC meeting, despite some signs of economic recovery. This upset the FOMC Board of Governors.

Why would a Fed chair risk the ire and support of his board – and only a few days before the next FOMC meeting?

One cannot help but notice how unusual this action was: A half point cut, made by a Fed chair acting alone, mere days before the next FOMC meeting and with the Dow already in rally mode. While one can never know exactly what another person is thinking, Greenspan’s actions certainly have the appearance of attempting to “goose” the equity markets.”

-excerpt from Bailout Nation

Say what you will about the Bernanke plan, but at least he is trying to save the economy — not rescue speculators.


Bernanke Invocation of ‘War Powers’ Undermines Fed Bank Chiefs
Craig Torres and Steve Matthews
Bloomberg Dec. 9 2008

Category: Bailouts, Federal Reserve, Fixed Income/Interest Rates, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

13 Responses to “FOMC Revolt ?”

  1. constantnormal says:

    “… at least he is trying to save the economy — not rescue speculators.”

    Unless you count banks that have left sound business practices behind as “speculators”.

    One can make a decent case that Bernanke is more intent on saving them than saving the economy.

    Where is there any sign of a desire on the part of the Fed (and especially Bernanke) to bring down the amount of leverage and debt in this economy?

  2. whitespiral says:

    Oooohhhh….There goes another BR about-face. Bring back the “Wall-Street’s Bitch” Barry!

  3. The Curmudgeon says:

    Citigroup and AIG aren’t speculators?

  4. CNBC Sucks says:

    I don’t know about Jim and Jeff, but Chuck and Rich have been at odds with Ben since spring. I think “revolt” is too strong a word, though, Ritholtz. These are central bankers – BANKERS – for Pete’s sake. I would say a hint of a slightly raised eyebrow over the afternoon tea.

    Ritholtz – I don’t normally make requests even at wedding receptions, but I want to hear your take on the Evergreen Solar appeal for bailout money.

  5. Ritholtz – I don’t normally make requests even at wedding receptions, but I want to hear your take on the Evergreen Solar appeal for bailout money.

    CNBC Sucks:
    I guess you aren’t Italian. ;-)

  6. CNBC Sucks says:

    Cool screenname. Actually, Italians sing at their own wedding receptions!

    I need to stay on topic for this thread…As Barry “The Bailout King” Ritholtz, can you please share your thoughts on Evergreen Solar’s bailout bid?

  7. Winston Munn says:

    Commenting after the repeal of Glass-Steagall: “We’re all speculators now.” – unnamed commercial bank president.

  8. wnsrfr says:

    off topic, but great redo of the Hitler bunker football videos–this time, he got stuck in the R.E. meltdown, sorry if already posted, the subtitles could have been synthesized from this blog :)

  9. CNBC Sucks:
    I was referencing The Godfather. You remember the scene at the daughter’s wedding, right?

  10. mikeydoggy says:

    Section 2a of the Federal Reserve Act states:

    “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates. ”

    It’s their call. Regional bank presidents can’t say squat when it comes to policymaking. There is no “usurping” of power here. Poole is a disgruntled former Fed official. Better off ignoring him.

  11. Neil C Denver says:

    From the Horses Mouth:

    “Open market operations–purchases and sales of U.S. Treasury and federal agency securities–are the Federal Reserve’s principal tool for implementing monetary policy.

    The short-term objective for open market operations is specified by the Federal Open Market Committee (FOMC). This objective can be a desired quantity of reserves or a desired price (the federal funds rate). The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.”

  12. Graphite says:

    “Say what you will about the Bernanke plan, but at least he is trying to save the economy — not rescue speculators.”

    A distinction without a difference. When the banking system loans out 100% of deposits a thousand times over, the only people who aren’t speculators are the ones without deposits. And Bernanke and his ideas played a big part in arranging that system.

  13. Graphite says:

    It’s also stunning that after 70 years of running the system according to Bernanke’s goofy neo-Keynesian & monetarist theories, people continue to believe that those same theories will save us after having brought us to precisely this point.