October 5, 2016 / 9:07 PM / 2 years ago

Fed's Lacker says Fed governors have grown more exposed to politics

HUNTINGTON, W.Va. (Reuters) - The Federal Reserve’s governors are less insulated from politics than in the past but recent policy decisions have surely not taken into account any political considerations, Richmond Fed President Jeffrey Lacker said on Wednesday.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, participates in a session titled, "Help or Harm: Central Bank Monetary Policies at the Outer Limits" NABE Economic Policy Conference in Washington March 5, 2013. REUTERS/Yuri Gripas

Within the Fed, governors and regional presidents are sometimes at odds over interest rate policy and some academics have argued governors tend to be more tolerant of inflation than regional presidents. Republican presidential candidate Donald Trump has accused Fed Chair Janet Yellen of playing politics with the Fed’s low rates policy.

In September when the Fed left rates unchanged, three regional Fed presidents voted instead for a quarter percentage point rate increase. Several but not all Fed governors have been vocal proponents for caution in raising rates.

Lacker, who does not have a vote on rates this year but participates in policy discussions, said on Tuesday he would have also voted in favor of a rate increase in September.

When the Fed’s top roles are filled, it has seven governors appointed by the U.S. president and 12 regional Fed presidents selected by private boards. The U.S. Senate must approve nominees for Fed governors, while the Fed’s governors approve regional presidents.

But because Fed governors in recent decades have often served less than half their 14-year terms, Lacker said they are “less insulated from the political process.”

Lacker, who has been arguing for more aggressive interest rate increases by the Fed, did not say, however, that the current batch of governors has been influenced by politics or soft on inflation. Indeed, he said it would be “preposterous” to think any recent policy decision took politics into account.

But he said that the Fed’s Board of Governors is at times stacked with people appointed by one political party.

“By the end of a president’s term in the White House, it has typically been the case that the majority or every member of the Board of Governors was appointed by a president of the same party,” Lacker said in prepared remarks at Marshall University in Huntington, West Virginia.

“The views of Governors may not be as diverse as intended,” he said.

Lacker said that regional Fed banks, which are private corporations that include bankers and other private individuals on their boards, provide important perspectives on the economy from outside Washington.

While some politicians have proposed removing bankers from regional Fed boards, Lacker said bankers provide expertise for clearing payments.

Reporting by Jason Lange; editing by Diane Craft

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