Archive for January, 2009

Understanding the Terms of the Board of Governors of the Fed

Wednesday, January 28th, 2009

The Federal Reserve System is a complex organization, comprised of twelve regional Feds and a Federal Reserve Board in Washington, DC.  In this article I describe the terms of the Board of Governors, the group that sets Fed policy (I have written elsewhere on the structure of the Fed).

The current structure of the Board of Governors (seven members with 14 year terms) dates back to 1935; under the original Federal Reserve Act (see here), there were five appointive members plus the Controller of the Currency and the Secretary of the Treasury (who was the ex-officio Chairman of the Board).

The Fed describes how the Board of Governors is nominated and how long they serve here, here and here:

The seven members of the Board of Governors are appointed by the President and confirmed by the Senate to serve 14-year terms of office. Members may serve only one full term, but a member who has been appointed to complete an unexpired term may be reappointed to a full term. The President designates, and the Senate confirms, two members of the Board to be Chairman and Vice Chairman, for four-year terms.

A full term is fourteen years. One term begins every two years, on February 1 of even-numbered years.

Upon the expiration of their terms of office, members of the Board shall continue to serve until their successors are appointed and have qualified.

Thus, as I write in early 2009, there are seven current terms, with starting dates from February, 1, 1996 to February 1, 2008. But very few Fed governors serve all fourteen years of their terms, and with the difficult relations between the previous President and the Senate (see, for example, here), the Fed is operating with five governors.  President Obama, with a large Democratic majority in the Senate, should have no problem filling the two empty seats.

The Feb 1996-Jan 2010 term is vacant.

Elizabeth Duke took office on  August 5, 2008 to fill the Feb 1998-Jan 2012 term.

The Feb 2000-Jan 2014 term is vacant.

Donald Kohn took office on August 5, 2002, to fill the Feb 2002-Jan 2016 term. On June 23, 2006, Kohn was sworn in as Vice Chairman of the Board of Governors of the Federal Reserve System for a four-year term ending June 23, 2010.

Kevin Warsh took office on February 24, 2006, to fill the Feb 2004-Jan 2018 term.

Ben Bernanke was sworn in on February 1, 2006, as Chairman and a member of the Board of Governors of the Federal Reserve System. He was appointed as a member of the Board to a full 14-year term, Feb 2006-Jan 2020, and to a four-year term as Chairman, which expires January 31, 2010.

Daniel Tarullo took office on January 28, 2009 taking the  February 1, 2008 to January  31, 2022 term.

Presumably some time in 2009 President Obama will nominate two governors to fill the other vacant seats. But President Obama will not be able to replace Chairman Bernanke or Vice Chairman Kohn until 2010, although presumably pressure from the President could convince one or more Board members to resign before their terms expire.

Understanding Employment (or Obama and the 2.5 or 3 or 4 or [update] 3.5 million jobs)

Sunday, January 11th, 2009

President-elect Obama’s economic team says that he was developing a plan that “would save or create nearly four million jobs”.  Four million jobs is a large number; this essay will try to explain how large. (Note: earlier, Obama said his plan would “save or create at least two and a half million jobs”; later Obama used the number 3 million). [Note: As of February 12, with the final version of the stimulus bill, the number is now 3.5 million jobs; I will update the table when I find a revised report from Obama's economists.]

Depending on how you measure employment, as I write in January 2009, there are around 140 million jobs in the United States.  Calculating the number of jobs is not as simple as it seems; the labor force is constantly changing, with some people leaving school and entering the labor force while others go back to school or retire, people being hired and fired and some people holding multiple jobs.  The Bureau of Labor Statistics calculates two measures of employment, the household measure (derived from a survey of households) and the establishment data (derived from a survey of employers); see this essay for more information on how the data are assembled.

Obama’s economic team use the payroll data (see here for their report).  As of the end of December, the BLS estimated that businesses employed 135,489,000 workers (what the Obama advisers call “payroll employment”).  They estimate that with the Obama stimulus plan, employment will rise to 137,550,000, resulting in an increase of roughly 2 million more jobs; but without the stimulus, employment would only be 133,876,000, so the Obama plan results in almost 4 million more jobs than would otherwise be the case.

The Obama team presents these numbers as the result of forecasts of what will happen without the stimulus compared to what will happen with the stimulus.  Here are the job data for the last five recessions and the estimates for the current recession:


Recession Start First 12 months Next 12 months Next 12 months
November 1973 +350 -580 +2558
January 1980 +231 -474 -1576
July 1981 -2084 +915 +4348
July 1990 -1539 +476 +2247
March 2001 -2080 -524 +877
December 2007 no stimulus -2589 -807 [est] -806 [est]
December 2007 with stimulus -2589 +1030 [est] +1031 [est]

Change in Payroll employment measured in thousands of workers.

To review the history of the recessions of the last 40 years; during every recession there was some stimulus, usually a combination of Fed rate cuts and an increase in the budget deficits. The Congressional Budget Office is already forecasting that the budget deficit in 2009 will be 8.3%, the largest deficit in the last 60 years.

The Obama team is forecasting that the recession that started in 2007, without the Obama stimulus, will be the worst recession in the last 40 years in terms of job loss, even with the large budget deficit and the aggressive rate cuts that the Fed has already made. They forecast larger job losses during the period after the recession started than has occurred in the last five recessions.  But economic forecasts are not 100% accurate; for example, it was only a nine months ago that candidate Obama was in favor of raising taxes when he took office although he noted that “we don’t know what the economy’s going to look like at that point.” At this point his team seems much more certain about where the economy will be in a few years.

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