There’s a possibility the Fed will shrink to three — or even two — governors next year.
Among other things, the missing governors could have an enormous impact on monetary policy. But before we delve into the implications again, I must explain the Fed’s Byzantine organizational scheme.
How the FOMC Works
Monetary policy — interest rates and the like — issues from the Federal Open Market Committee. The FOMC comprises:
• All seven Board of Governors members
• The president of the New York Federal Reserve Bank
• Four of the other 11 Fed Bank presidents, who rotate through one-year terms.
So on this committee of 12, the politically appointed governors have seven votes, outweighing the five privately appointed bank presidents. Except when there aren’t seven governors, as is the case now and probably will be well into 2018, at least.