How Politicized Is the Federal Reserve?

For every Republican economist the system employs, it has more than 10 Democrats.

By Emre Kuvvet. He is an associate professor of finance at Nova Southeastern University. Excerpts:

"Congress mandates that the Federal Reserve promote price stability and full employment. Yet even as inflation rages, the Fed’s economists increasingly have been focused on issues such as climate change, race and sex discrimination, and economic inequality. Since 2020 the Fed’s regional banks and Board of Governors have conducted numerous seminars and conferences and published voluminous research papers on these politically charged topics.

Several regional banks have explicitly indicated their partisan commitments. The New York Fed announces on its homepage that it “stands in unity with all those who oppose racism, hate, and violence.” It wishes “to root out the intolerable inequities and injustice grounded in systemic racism that persist in our society” and believes this job won’t be done “until access to health, education, safety, and justice knows no racial or other boundaries.”

What is the source of this mission drift? The answer, I believe, is simple: Many of the key research and analysis positions in the Federal Reserve System are held by left-leaning Democrats.

I recently set out to determine the political affiliation of every Federal Reserve System economist using various state, county and city voter-registration databases. What I found was that in 2021 the overall Democrat-to-Republican ratio was 10.4 to 1. For every Republican economist at the Federal Reserve System, there are more than 10 Democrats. The lack of political diversity is especially pronounced among the economists of the Board of Governors, where the ratio is 48.5 to 1.

While information on registered voters’ party affiliation isn’t available in every state, the Democrat-to-Republican ratio for economists at the seven regional Federal Reserve banks for which it is available ranged from 3 to 1 in Cleveland to 12 to 1 in San Francisco.

The range in partisanship among leaders of regional Fed banks could explain the considerable variation in partisan balance across the system. Leaders of some Fed banks, such as the Federal Reserve Bank of San Francisco, are more outspoken about politically charged issues. Its president said in 2019 that “the impacts of climate change” affect the Fed’s “core responsibilities,” and “climate change is an economic issue we can’t afford to ignore.” Partisan leaders, either subtly or directly, can encourage staff economists to conduct conferences and seminars and publish research on politically charged topics. Economists who don’t share outspokenly partisan leaders’ ideology may find themselves unwelcome, resulting in the bank becoming even more partisan over time.

In the ranks of the systems’ most senior economists, those in leadership positions, the Democrat-to-Republican ratio is 22.25 to 1, I found.

Things are likely to get worse. The Democrat-to-Republican ratio for Fed economists between 50 and 60 years old is 6.5 to 1. The ratio for those 40 or younger is 20.3 to 1. Because these economists have excellent job security, once a large group of younger members of one political type get in the door, they’re very difficult to get rid of and are likely to bring in new hires of a similar viewpoint."