The vacancies weaken the Fed. For one thing, they force the remaining governors to spread themselves more thinly: one of them chairs four committees while serving on a fifth. As Willem Buiter of Citigroup notes, “An incomplete deck of cards means the shop is likely not to be managed properly.”
As the vacancies multiply, they also risk bogging the Fed down in arcane administrative procedures. American law states that when a quorum of members of a public body such as the Fed meets, there should be advance public notice and elaborate record-keeping. Should the board dwindle further, to four members, three would constitute a quorum. That, in turn, would mean that three Fed governors could not chat in the corridor, much less attend the same internal committee meeting, without a great palaver.
There are also implications for monetary policy. The FOMC comprises the seven governors and presidents of five of the Fed’s 12 regional branches. The governors are typically more dovish than the presidents, perhaps because politicians, who tend to like low rates, appoint the governors whereas financial firms, which tend to prefer higher ones, have a big say in the appointment of the presidents. The governors should have the upper hand, but vacancies have muddied that calculus—just as the Fed embarks on its first tightening cycle in a decade.
