Political Affiliations of Federal Reserve Economists

By Emre Kuvvet. He is Professor of Finance at Nova Southeastern University. Excerpts: 

"This paper is related to the literature looking at the political activism of the Federal Reserve System. White (2005) shows that the Federal Reserve System sponsors the monetary economics research of a large number of economists through its research program. He suggests that the Fed’s sponsorship of these monetary economists can influence what is researched and the conclusions of that work in monetary economics. Fabo, Jancokova, Kempf, and Pastor (2021) confirms the hypothesis of White (2005) by showing that in the case of the macroeconomic effects of quantitative easing (QE), papers of central bank researchers report larger effects of QE on output and inflation than those of academic economists. Fabo et al. (2021) also demonstrate that central bank researchers that report larger QE effects have better career outcomes. In addition, Binder (2021) finds that populism puts pressure on central banks and causes the Federal Reserve to amend its long-term strategy. Binder and Parajon-Skinner (2021) also show that the topics of research papers published across the twelve regional reserve banks have become more politicized over the past 15 years. They find that a large percentage of the regional banks’ research papers focuses on topics such as race, gender, climate change, and inequality. They also find that this trend is more pronounced for some reginal banks such as San Fransico, Dallas, and Boston.

The literature indicates the increasing politization of the Fed. Parajon-Skinner (2021) suggests that political activism can weaken the legitimacy of the Fed and eliminate the independence and authority of the Fed. However, the previous literature shows only indirect evidence of the politization of the Fed. In what follows, I extend the literature by showing direct evidence that the Fed as a politized body by studying the political affiliations of the Fed economists. My results indicate that political and value judgements of the Fed’s economists’ publications and analysis may be linked to their ideological backgrounds. This is concerning, as the political homogeneity of Fed economists can undermine the legitimacy of their policy recommendations and analysis in the eyes of the public. That is, the public may see the Fed as a political institution, undermining the non-partisan and independent nature of the Fed.

Previous studies look at the political ideologies of the broader economic profession. For instance, Langbert, Quain, and Klein (2016) report that Democrats outnumber Republicans 4.5:1 among economics faculty at 40 leading universities. In addition, Langbert (2020) finds a ratio of 4:1 among members of the American Economic Association (AEA), 4.1:1 among academic AEA members, and 2.5:1 among AEA members working outside academia and government. Earlier, Klein and Stern (2006) estimateds the ratio at 4.1:1 among public sector economists and 1.4:1 among private sector economists. McEachern (2006) shows Democrats outnumber Republicans 5.1:1 among AEA members in terms of political contributions. Likewise, I find that economists at the Fed are more likely to lean left than the broader economics profession.

I find that the ratio of Democrats to Republicans among Fed economists is 10.4 to 1. The lack of political diversity is especially pronounced at the Board of Governors of the Federal Reserve System (48.5:1). Economists at regional Reserve banks range from 3:1 (Cleveland) to 12:1 (San Francisco). The lack of diversity is also noteworthy in leadership positions (22.25:1). Economists who are 40 years old or younger at the Fed are more likely to lean left (20.33:1), as are female economists (27.5:1). This suggests the Fed is likely to become even less politically diverse in time."